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Commercial Mortgages 101: Everything You Need to Know to Create a Winning Loan Request Package
     

Commercial Mortgages 101: Everything You Need to Know to Create a Winning Loan Request Package

by Michael REINHARD
 

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With real estate prices at their lowest in years and the economy poised for a rebound, it’s an opportune time to invest in commercial real estate. But credit and financing issues can still pose challenges that prospective borrowers must overcome in order to get the money and mortgage terms they need. Commercial Mortgages 101 is a step-by-step guide for both real

Overview

With real estate prices at their lowest in years and the economy poised for a rebound, it’s an opportune time to invest in commercial real estate. But credit and financing issues can still pose challenges that prospective borrowers must overcome in order to get the money and mortgage terms they need. Commercial Mortgages 101 is a step-by-step guide for both real estate investors and mortgage brokers, offering insight, practical tools and a thorough overview of commercial mortgage underwriting and credit analysis. Readers will learn how to: Think and speak like a commercial real estate lender • Quickly size and under write a basic commercial real estate loan • Prepare a personal cash flow statement and calculate true net worth and liquidity • Read and interpret a lender’s preliminary loan proposal • Create a Schedule of Real Estate Owned • Prepare a persuasive and professional loan request package • Choose the right form of ownership (including LP, LLC, Co-tenancy and others) • And more Both thorough and timely, Commercial Mortgages 101 reveals what readers need to ensure their loans are approved.

Product Details

ISBN-13:
9780814415085
Publisher:
AMACOM
Publication date:
05/14/2010
Sold by:
Barnes & Noble
Format:
NOOK Book
Pages:
240
Sales rank:
848,662
File size:
2 MB

Read an Excerpt

INTRODUCTION Commercial Mortgages 101 is the culmination of fifteen years' experience in commercial real estate lending and credit analysis that began at the conclusion of the savings and loan crisis of the late 1980s and early 1990s. Toward the end of the savings and loan crisis that dominated the headlines for nearly a decade, commercial real estate lending was virtually nonexistent. Lending practices and underwriting policies once thought sound were now deemed completely unreliable. Eventually, a new breed of lenders rose from the ashes and reestablished the commercial real estate lending industry, transforming and setting in place new underwriting and credit standards still relevant today. Commercial Mortgages 101 embodies this new establishment and attempts to provide a comprehensive overview of commercial real estate loans and fundamentals in underwriting and credit analysis. But before we discuss the contents within this book, a little history is in order. The Tax Reform Act of 1986 and ensuing savings and loan crisis set in motion the beginning of the end for commercial real estate loans. Commercial real estate lenders were about to enter the Dark Ages, a decade-long systematic collapse and decline of the commercial real estate loan industry. From 1986 to 1995, the number of federally insured savings and loan institutions in the United States declined from 3,234 to 1,645. This was primarily but not exclusively a result of unsound commercial real estate lending. While they were not part of the savings and loan crisis, many other commercial banks failed during this time, as well. Between 1980 and 1994, more than 1,600 banks insured by the Federal Deposit Insurance Corporation (FDIC) were closed or received FDIC financial assistance. The U.S. government ultimately appropriated $105 billion to resolve the crisis. After banks repaid the loans through various government interventions, there was a net loss to taxpayers of approximately $124 billion by the end of 1999. Although the savings and loan crisis of the 1980s and early 1990s seemed to have singlehandedly brought the commercial real estate lending industry to a halt, there were a few commercial banks and nonbank lenders such as life insurance companies and pension fund advisors that were still making commercial real estate loans, primarily refinances. But it wasn't until about 1993 that a new breed of commercial real estate lenders called conduit lenders emerged as a new source of commercial real estate loans, marking the beginning of a new era and forever changing the way commercial real estate loans are originated and underwritten. Conduit lenders, which were created by Wall Street investment banks, reignited the commercial real estate loan industry by providing a secondary market (called securitization) for mortgage banking firms, commercial banks, life insurance companies, and federal savings banks (successors of the savings and loan banks), a market that had never before existed. The commercial real estate lending industry, unlike years before, was now back in business. With the advent of conduit lending or securitization came a new way of underwriting that was sorely absent during the era of the savings and loan turmoil. Stringent underwriting ratios and guidelines set by Wall Street investment banks during this time became the new standard for making commercial real estate loans among traditional banks or any other lender entering the mortgage banking business. Sound underwriting practices didn't just stop with the Wall Street banks; credit rating agencies such as Standard & Poor's, Fitch, and Moody's also provided further scrutiny before a loan was securitized. The adoption of this new underwriting standard by traditional banks and other nonconduit lenders has duly been cemented in the industry and now serves as the basis for understanding how commercial real estate loans are underwritten. The commercial real estate loan industry is ver

Meet the Author

MICHAEL REINHARD (Houston, TX) is an independent mortgage banker for Texas Commercial Mortgage. He has originated and underwritten over $300 million in commercial loans since 1995 covering apartments, retail centers, office buildings, industrial warehouses, and more.

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