Archive for July, 2010

We are often asked what is the optimal time for a “rel =” nofollow “onclick =” javascript: pageTracker. _trackPageview (‘/ outgoing / article_exit_link’); “href =” http://www. CFA commercially. commercial_loan_refinance / COM. html “> refinancing a commercial . Many factors such as market interest rates, prepayment penalties, existing loan terms and obtaining the general objectives of the borrower in the game There is no set answer, but it Below are some reflections on the real world, as you analyze your own business refinancing.

refinance into new commercial loans. financial consultants, as the method of discounted cash flows, which essentially compares the two loans on the basis of net present use value.

However, we found that most commercial developers are primarily interested in how the proposed refinancing of loans:

is At their first monthly cash flow.

2 What are closing costs and how these costs will affect their capital.

3 What are the pockets of his expenses.

four How long will it take to increase cash flow to “reimburse” the owner (along with a pay cut).

main course pay a substantial part of a commercial loan. But for most owners, especially those with highly leveraged properties, cash and more urgent. This has been paid because of the relatively high level of debt cons cash net profit after all expenses.

Example 1 Condominium office building.

borrower is three years, five years in a company, established 20 years of age and consider refinancing the loan in 30 years, 30 years amortization loans business. Borrowers primary motivation is the desire to increase cash flow to help corporate profitability. In addition to borrower concerns about rate increases in the future if the existing loan balloons

existing loans – off five years fixed 20 years.

Property Value $ 1,500,000

current loan balance of $ 1,075,000

Original loan balance $ 1,125,000 (purchased building with 25% down)

current LTV 72%

Current Equity 28% $ 420,000 or

seventh interest rate 25%

$ 10,418 monthly payment

proposed loan – 30 year fixed, amortization of 30 years. Borrower to reduce turnover lot about closing costs as possible in the amount of the loan “from the pocket of cash flow planning.

Property Value $ 1,500,000

current loan balance of $ 1,075,000

Closing costs $ 19,638

proposed loan amount $ 1,094,638

Proposed 73% loan to value
< br />; interest rate is 8%

Monthly $ 8,582

* Closing Cost Breakdown (as in Lender fees $ 2,000 $ 2,000 legal departure tax of 1% or $ 10,838, $ 3.000 $ 1.800 environmental assessment).

increase cash flow $ 1,835 per year per month or $ 22,028. Essentially in terms of cash, the borrower will pay the cost of borrowing in less than a year, despite rising interest rates by 75 basis points. Even if the borrower will pay for the assessment and environmental report in advance, they would “return” of these costs in the region, if desired.

In our experience, most entrepreneurs would be very interested in continuing the proposed refinancing.

Example 2 Investment Property, 10 unit shopping center. Borrower owns seven years and has held two loans to the property in question. The first loan is a variable rate loan with interest at the agreed, is adjusted annually, amortized over 25 years and the second is the seller instead. It is amortized over 20 years and has a fixed interest rate for 20 years. Neither loan has a balloon provision, but the first loan has a prepayment fee of 5% of the loan balance, which is actually for 3 years.

the property of the current value – 9% Cap $ 2,600,000 ($ 2,300,000 for purchase)

combined current balance of loan $ 1,635,000

Original loan balance, a $ 1,610,000 (70% LTV)

initial loan balance, 2 $ 230,000 (10% LTV)

current LTV of 61%

interest rates, first sixth

65% interest rate, 2nd 7%

current Prime coverage ratio debt 27
< , br />

combined monthly payment $ 15,448

Loan Project – 10 years fixed amortized 30 years. Borrower has decided to combine the two loans, and wants the security of a fixed rate loan. Borrower wants to cut in most of your closing costs as possible in the amount of the loan “deployment of pocket cash.

Property Value – $ 2,600,000 9%

Cape combined current loan balance $ 1,635,000
, <, br / Closing costs> $ 83,500 *

Proposed Loan Amount 1,735,568

Proposed Loan to Value 67%

seventh interest rate 5%

current Prime coverage ratio debt 54
< , br /> Net Operating Income $ 235,000 payment

monthly $ 12,743

Closing Cost Break Down ($ 72 Pre Pay 500 [5%] of the first loan, the title and $ 3,000, the lender legal fees up fee of $ 2.200 1% or $ 17.185, $ 4,000 of assessment, $ 1,800 Environmental Research). increase

cash flow is $ 2,704 per month or $ 32,449 per year, while costs of borrowing in the vicinity at $ 83.500 mainly due to payment penalties Early high. The borrower is facing a recovery period of the closure costs over two and a half years. In addition, the interest rate was raised to the proposed loan, which of course the total cost of the loan considerably.

not an easy decision for the borrower. The ability to move forward is probably much the rest of the notice of the borrower, when the future interest rates, if the lead ends.

It is interesting to note that the borrower will be able to increase its loan amount of $ 2,333,964 (cash on proceeds of approximately $ 598,000) would , if desired. This is due to increased cash flow. The ratio of debt coverage would improve the construction of an initial 54 – which is typically a minimum DCR. If the second order of the borrower was to obtain money from the assets to be injected into another property (or otherwise), it would probably be a decision to go ahead with the loan much easier.