Terms for: C
A measurement of investment returns based on the percentage relationship of annual cash income to the investment cost.
Net income shortfalls on one property are offset by excess cash flow from other properties in a pool of “crossed” loans. Significantly enhances a transaction from the viewpoint of investors and rating agencies.
An evaluation of a person’s capacity (or history) of debt repayment. Generally available for individuals from a local retail credit association; for publicly held companies by such firms as Dunn & Bradstreet; and for bonds by such firms as Moody’s, Standard & Poor’s, and Fitch’s.
A method of appraising property based on the depreciated reproduction or replacement cost (new) of improvements, plus the market value of the site.
A specialized type of mortgage banker whose function is limited to the origination of mortgage loans which are sold to other mortgage bankers or investment bankers under a specific commitment.
The most widely known measures of price levels and inflation that are reported to the U.S. government. It measures and compares, on a monthly basis, the total cost of a statistically determined “typical market basket” of goods and services consumed by U.S. households.
A short-term, interim loan for financing the cost of construction. The lender advances funds to the builder at periodic intervals as work progresses. Typically a recourse loan to the borrower.
Percentage of the original loan paid in equal annual payments that provides principal reduction and interest payments over the life of the loan.
An entity which issues mortgage- backed securities backed by mortgages which were originated by other lenders.
Operational expenses related to the maintenance of retail and office properties. Under a Triple-Net lease the Tenant is required to reimburse the Landlord for their proportionate amount (based on square footage) of this expense.
An official notification from a Lender to a Borrower indicating that the Borrower’s loan application has been approved. It will state in detail the terms and conditions of the prospective loan.
A charge required by a lender to lock in specific terms on a loan at the time of Commitment.
A financial institution authorized to provide a variety of financial services, including consumer and business loans (generally short-term with full recourse to the Borrower). Commercial banks may be members of the Federal Reserve System.
Various fees and expenses payable by the seller and buyer at the time of a real estate closing, (also termed transaction costs). Includes brokerage commissions, lender fees, title insurance, recording fees, prepayment penalty, inspection and appraisal fees, and attorney’s fees.
Specific items that a Lender will require the Borrower to personally guarantee for the life of the loan. Typically include (but are not limited to) environmental, fraud, misappropriation of funds, and theft.
The rate of return on net operating income considered acceptable for an investor. A rate of return used to derive the capital value of an income stream. The formula is Value = annual income divided by the capitalization rate. Also known as “cap rate”.
The conversion of a future net income stream into present value by using a specified desired rate of earnings as a discount rate. This capitalization rate is divided into the expected periodic income to derive a capital value for the expected income.
A major improvement that will have a life of more than one year. Capital expenditures are generally depreciated over their useful life, as distinguished from operational repairs, which are subtracted from income during the year in which they were expended.
Terms for: D
The rate of interest charged to banks who buy money from the Federal Reserve System. An increase in the rate not only discourages the banks from borrowing, but it also serves as a signal that interest rates are probably going to increase. Also, a compound interest rate used to convert expected future income into a present value income.
A note having no date for repayment, but due on demand of the lender.
In defeasance, the lender replaces the cash flows of the original loan with actual Treasury Securities. The borrower pays the lender enough money to buy these securities and the lender goes out in the bond market and buys the right combination of bonds. After this is done, and the lender has a security interest in the treasuries, the property is released as collateral for the loan and the treasuries become the new loan collateral.
Fannie Mae’s principal line for purchasing individual multifamily loans. We delegate the processing and approval of the loans to our DUS Lenders, and they take a percentage of the risk.
The deed to real property which serves the same purpose as a mortgage but instead of two parties, three parties are involved. The third party holds title for the benefit of the Lender. The Lender is called the “Beneficiary”. The Borrower is called the “Trustor”. When a loan is made, the Borrower conveys title to a third party called the “Trustee” who holds the title for the benefit of the Lender although the instrument itself may remain in the Lender’s possession.
The periodic payment (monthly, quarterly, or annually) necessary to pay the interest and principal on a loan, which is being amortized over a longer term (usually 25-30 years).
The relationship between the annual net operating income (NOI) of a property and the annual debt service of the mortgage loan on the property. Both Lenders and Investors calculate this ratio to assist them in determining the likelihood of the property generating enough income to pay the mortgage payments. From the lender’s viewpoint, the higher the ratio, the better.
A long-term bond or note issued by governments and/or corporations and not secured by a mortgage or lien on any specific property. Since there is no specific property securing the debenture, the ability to repay the debt is based solely on the financial strength of the issuer.
Terms for: E
A comparison of the operating expenses to potential gross income. This ratio can be compared over time and with that of other properties to determine the relative operating efficiency of the property considered.
A document by which a tenant certifies to a Lender that all rental amounts due and owing are current, and that the Landlord is in compliance with all terms and conditions of the Lease. Also, a document by which the mortgagor (borrower) certifies that the mortgage debt is a lien for the amount stated. The debtor is thereafter prevented from claiming that the balance due differs from the amount stated.
- A legal doctrine based on fairness, rather than strict interpretation of the letter of the law.
- The market value of real property, less the amount of existing liens.
- Any ownership investment (stocks, real estate, etc.) as opposed to investing as a lender (bonds, mortgages, etc.).
Addition to or modification of a title insurance policy which expands or changes coverage of the policy, fulfilling specific requirements of the insured.
A right or claim upon real property (land) held by one other than the property owner. Encumbrances are divided into two classes, as follows:
- Liens (mortgages, deeds of trust, mechanics’ liens, local taxes, assessments, judgments, attachments, etc.).
- Encumbrances other than liens which are limitations on the ownership of the land (such as conditions, restrictions, reservations, easements, etc.).
The presence of an improvement such as a building, a wall, a fence or other fixture which overlaps onto the property of an adjoining owner.
The right of a government to take privately owned property for public purposes under condemnation proceedings upon payment of its reasonable value. See Condemnation.
The right of a Lender to a share in the gross profits, net profits or net proceeds in the event of a sale or refinance of a property on which the Lender has made a loan. Also known as an “equity kicker.”
Term used for an income-producing property, derived from the potential gross income, less a vacancy factor and a collection loss amount.