Cash flow available for debt service along with the quality and stability of that cash flow are the critical factors. When we size a loan and prepare it for submission to a lender we always present it based on cash flow. Cash basis accounting and accrual accounting are different worlds when it comes to underwriting and placing a commercial mortgage.
Scottsdale, AZ -- (SBWIRE) -- 02/12/2013 -- When a client sends us a loan package we go over the operating statements in detail. Usually we will talk to the client's controller or accountant and have the operating statements restated. Typically we will remove non operating expense items such as depreciation and amortization. We will remove capital items that are being expensed such as leasing commissions and tenant improvements and renovations. These differences occur because accrual accounting tries to reduce income and reduce tax impact. Cash flow accounting tries to establish the maximum funds that are available to service debt. The value of all commercial properties, retail, office, industrial and multifamily comes down to the capitalization of the free cash flow that the property generates.
We underwrite every loan internally before it goes to any lender. That way we anticipate what the lender is going to ask and look for. Underwriting has changed from just a few years ago. We still look at debt service coverage. We still look at loan to value ratios. We now also look at debt yield. Then we look at the stability of income and the credit quality of rental income. Higher vacancies are acceptable. The parameters have changed some. We decide what potential lender or program would be interested in this kind of property. Then we call the lender and discuss their parameters. That way the lender has a heads up on the loan package and is expecting it.
Compared to a few years ago, in general, today, loan to value is lower. Interest rates are lower so debt service coverage is easier to achieve as is debt yield. There are two important factors that many borrowers are not aware of. First capitalization rates for quality properties are down. We have cap rate compression because investors are seeking yield. Second we can do loans for properties that are not 100% rented. Some vacancies are acceptable. The important factor is stability and quality of income.
Commercial mortgage interest rates are near historic lows. There is abundant funding available. It is prudent to take advantage of the current mortgage market. Locking in the low rates of today for an extended period makes good business sense. First Charter Financial can evaluate your real property financing needs and suggest advantageous financing.
About First Charter Financial Corporation
First Charter Financial Corporation is a leading independent mortgage company conducting business on a nation wide basis. We specialize in arranging financing for commercial properties throughout the US. The projects that we handle include office, retail, multifamily, hospitality and specialty properties. We arrange loans in amounts ranging from a minimum of one million dollars up to as large as 100 million dollars. We maintain relationships with large and small insurance companies, retirement and investment funds, regional, national and multinational banks and we are very active with capital markets funding sources. Victor Weintraub, President of First Charter Financial, has been in the mortgage business for over forty years. He is also a noted economist. Contact First Charter Financial with your commercial mortgage concerns. Email firstname.lastname@example.org Telephone(480)970 0990