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Adjustable Rate Mortgage (ARM):
Mortgage where the interest rate adjusts periodically up or down through a set index. Also called a floating rate mortgage.
Anchored:
Refers to a piece of commercial real estate property which will serve as the main tenant in a shopping center.
Apartment Conversion:
When a rental apartment building is converted to individually owned units.
Apartment Rehabilitation:
Extensive remodeling of an older apartment building.
ARM:
Adjustable Rate Mortgage. Mortgage where the interest rate adjusts periodically up or down through a set index. Also called a floating rate mortgage.
Bond Financing:
Type of financing that is a promise to repay the principal along with interest on a specified date.
Bridge Loan:
Financing which is expected to be paid back relatively quickly, such as by a subsequent longer-term loan. Also called a swing loan.
Cap Rate:
A net yield set by an investor to determine the value of an income producing property.
CMBS (Commercial Mortgage Backed Security):
A bond or other financial obligation secured by a pool of mortgage loans.
Commercial Conduit:
Direct link to an institutional lending source
Co-op:
A type of common property ownership, such as when the residents of a multi-unit housing complex own shares in the corporation that owns the property, rather than owning their own units.
Credit Company:
A lending organization that obtains it source of funds from the commercial market.
Credit Enhancements:
A loan to provide improvements to the property.
Defeasance:
A clause in a mortgage that gives the borrower the right to prepay a commercial mortgage by purchasing
US Treasuries in an escrow account to pay off ongoing debt service.
DSC (Debt Service Coverage) Ratio:
Debt Service Coverage Ratio: A 1.0 means breakeven. The ratio is calculated by taking the net operating income and
dividing it by the mortgage payments. Most lenders look for a ratio of 1.25 or higher. Also known as Debt Coverage
Ratio.
Engineering Report:
Report generated by an architect or engineer describing the current physical condition of the property and
its major building systems (i.e., HVAC, parking lot, roof, etc.) The report also determines an amount for
calculating replacement reserves, if needed.
Equity Capital:
Capital raised from owners. In a commercial real estate case, a lender will also provide equity capital for a percentage of ownership.
Fannie Mae:
A congressionally chartered corporation which buys mortgages on the secondary market from Banks, Savings & Loans, Etc; pools them and sells them as mortgage-backed securities to investors on the open market. Monthly principal and interest payments are guaranteed by FNMA but not by the U.S. Government.
FHA:
Federal Housing Administration, a government agency
Fit–Out:
Tenant improvements within a commercial property.
Fixed Rate Mortgage:
Mortgage where the interest rate is set for the term of the loan.
Flex Space:
An industrial property which has both an office and an industrial component.
Floating Rate Mortgage:
See Adjustable Rate Mortgage
Forward Commitment:
A written promise from a lender to provide a loan at a future time.
Freddie Mac:
Federal Home Loan Mortgage Corporation. Entity buys loans from conventional lenders and packages them for sale to investors as securities.
Hard Equity:
High interest rate financing.
HUD:
Housing and Urban Development, a federal government agency.
Investment Advisor:
A person or organization employed by an individual, insurance company, pension fund or mutual fund to manage assets or provide investment advice.
Investment Banker:
An individual or institution which acts as an underwriter or agent for corporations and municipalities issuing securities, but which does not accept deposits or make loans. Most also maintain broker/dealer operations, maintain markets for previously issued securities, and offer advisory services to investors. also called investment banker. see also bank, commercial bank, originator, syndicate.
Lines of Credit:
An arrangement in which a bank or vendor extends a specified amount of unsecured credit to a specified borrower for a specified time period.
LTV:
Loan to Value: Proposed loan amount divided by the value of the property.
MAT:
Monthly Average Treasury
Mezzanine:
Late-stage venture capital financing.
Miniperm:
Short term permanent financing, usually 3 to 5 years.
Mortgage Banker:
An entity that makes loans with its own money and them sells the loans to other lenders.
Mortgage Broker:
An entity that arranges loans for borrowers.
Participation:
A type of mortgage where the lender receives a percentage of the gross revenue in addition to the mortgage payments.
Phase I Environmental Assessment:
An assessment and report prepared by a professional environmental consultant who reviews the property,
(both land and improvements) to ascertain the presence or potential presence of environmental hazards at the
property such as underground water contamination, PCB’s, abandoned disposal of paints and other chemicals,
asbestos and a wide range of other potentially damaging materials.
An Environmental Site Assessment (ESA) provides a review and makes a recommendation as to whether further
investigation is warranted (via a Phase II Environmental Site Assessment).
Phase II Environmental Assessment:
An Environmental Site Assessment (ESA) that is warrented based on the results of a Phase I ESA performed earlier.
The Phase II ESA report would confirm or disavow the presence of an environmental hazard and, should one be found,
will recommend additional review and / or mitigation efforts that should be undertaken.
Points:
Loans fees paid by the borrower. One point is 1% of the loan amount.
Prepayment Penalty:
A charge for paying off a loan before it is due.
Prime Rate:
An artificial rate set by commercial banks. Many banks will use the Wall Street Prime rate. This is a rate set by the top leading banks in the country.
Property Classification:
Most lenders will classify a property by its age and needed maintenance. As an example many insurance companies will only loan on properties that are class A, meaning that the properties age is 10 years old or less and is not in need of repair.
Recourse:
A loan for which the borrower is personally liable for payment if the borrower defaults.
REIT:
(Real Estate Investment Trust) Pooled funds that purchase and hold commercial real estate.
Sale / Lease Back:
When a lender buys a property and leases it back to the seller for an extended period of time.
Savings & Loan:
A federally or state chartered financial institution that takes deposits from individuals, funds mortgages, and pays dividends.
SBA:
Small Business Administration, a federal government agency.
Second Mortgage:
A mortgage on real estate, which has already been pledged as collateral for an earlier mortgage. The second mortgage carries rights, which are subordinate to those of the first.
Standby Commitment:
A formal offer by a lender making explicit the terms under which it agrees to lend money to a borrower over a certain period of time.
Upfront Fees:
Generally refer to fees charges to pay for third party costs like appraisals.
Workouts:
Attempts to resolve a problematic situation, such as a bad loan.
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