Commercial Real Estate Blog

How to Calculate an Interest Reserve for a Construction Loan

There’s no doubt about it, construction lending is tough.  From changing interest rates, long lead times, and freak weather events, there are a myriad of risks that can derail a project.  However, from a lender’s perspective, there’s one risk that is top of mind when making a construction loan – the borrower’s ability to make …

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Eleven Types of Risk in Commercial Real Estate

Every investment involves a certain amount of risk. There are certain general sources of risk that influence all assets – things like geopolitical risk and global macroeconomic risk. What makes each asset unique is the level of sensitivity that its rate of return has to those risks. In addition, specific types of assets have risks …

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How The Single Net Lease Works

In the commercial real estate industry there are a variety of lease types and also various names used to describe those leases. The term “single net lease” is sometimes used in commercial real estate to describe a lease where the tenant is responsible for paying one particular expense. In this article we’ll discuss the single …

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What is Force Majeure and How Does it Work?

When an unexpected event interrupts business as usual, it is common to question whether or not that event will excuse parties from performing their contractual obligations. Many legal contracts, including real estate leases, attempt to address this issue with a “Force Majeure” clause, which outlines how these unexpected events are handled. Given the sudden impact …

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Coronavirus Commercial Real Estate Survey Data

Last week we surveyed our audience about the immediate impacts of the Coronavirus pandemic on commercial real estate professionals. Below are the results and we will update with additional survey data over time.

Understanding a Lender’s Credit Policy Requirements

When trying to finance a real estate project, it’s common for a borrower to approach multiple lenders for a loan. Unfortunately, it’s equally as common for those same lenders to provide inconsistent responses. One lender may look at a deal and want nothing to do with it while another may look at the same deal …

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How The Loss to Lease Calculation Works

Loss to lease is a commonly used calculation in a commercial real estate analysis. However, loss to lease can also be one of the most confusing calculations to understand, especially when you see it for the first time. In this article, we’ll take a closer look at the loss to lease calculations and walk through …

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The Capital Stack Explained

Depending on the complexity of a real estate project, financing can come from many sources. Collectively, the sources are often referred to as the “capital stack” where “stack” is an appropriate metaphor because each source comes with its own collateral, return expectations, and repayment priority. In this article, we’ll define the capital stack and discuss …

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Understanding Personal Guarantee Structures

Unless you run a large company with an established track record of repaying loans, a bank will likely ask for a personal guarantee before approving a commercial real estate loan.  What is a personal guarantee?  In this article we’ll thoroughly explain personal guarantees by covering the following: Definition of a personal guarantee When personal guarantees …

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30/360 vs Actual/360 vs Actual/365: Loan Accrual Calculations Explained

In a former life, I helped banks install loan servicing software. In every installation, there came a point where the bank would have to decide which accrual method to use for its loan portfolio.  When we got to this point, the Loan Operations manager would always turn to me and say, “what’s the difference between …

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