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New Underwriting Guide for Securing Office Loans from Pacific Security Capital
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Added: 03/03/2004
Type: Summary
Viewed: 462 time(s)
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New Underwriting Guide for Securing Office Loans from Pacific Security Capital
Pacific Security Capita defines the required and preferred criteria to consider when applying for a Commercial Real Estate Office Loan making the loan application process much more manageable, and much less stressful. Drawing on extensive knowledge of the commercial real estate business Pacific Security Capital, a leading commercial real estate lender has documented the following guide that defines the underwriting criteria necessary to secure a Commercial Real Estate Office Loan.
Through their years of experience Pacific Security Capital has compiled the following required and preferred criteria to consider when applying for an Office Loan:
1 Determine Eligible Properties:
Eligible properties include CBD and suburban multi-tenant office properties with a stabilized income. Unacceptable property candidates include physical or functionally obsolete buildings; buildings that cannot be converted to multi-tenant uses and economically obsolete properties.
2 Determine eligible property locations:
Nationwide properties located on main roadways with good visibility and access, or in an established office park are eligible. Locations in primary office market areas or with a demonstrated ability to compete and re-lease space at market rates are preferred. Solid market strength as is determined by, among other factors, absorption and trends in population and employment, is required.
3 Identify Terms of the Loan:
* Loan Size - $1 Million $30 Million are standard; larger portfolio transactions are also considered.
* Debt Service Coverage 1.20 x minimum
* Loan-to-Value Ratio Up to 80%
* Loan Term 5, 7, 10 years
* Amortization 30 years or less depending on major lease terms and expiration, and property age.
* Tenancy Multi-tenant or credit-tenant properties are preferred. Loans for single tenant properties will normally be amortized over the remaining term of the lease and typically will require higher coverage and reserves.
* NOI Calculation Strongly prefer to receive three full years of operating history (waived for new construction). Rent revenue is the lesser of the contractual base rents or current market rents. Expense recovery must reflect the stabilized operation history of the project. Minimum vacancy of 5% or sub-market average is required. Recoveries on NNN rents must be consistent with market.
* Rent Roll Prefer smooth lease expiration schedules so that the debt coverage ratio in any given year does not fall below break-even. Properties with significant rollover risk may be considered on a case-by case basis. Tenants not occupying space and paying full rent for at least 3-months will require a seasoning reserve equal to 3-months rent.
* Fees A minimum management fee of 5% of effective gross income is standard. Single tenant buildings that are fully maintained and managed by the occupant can be underwritten at a 3% management fee.
* Reserves $.10 to $.25 per square foot for structural reserves depending on property age and condition and adjusted in accord with the engineering report. Tenant Improvement and Leasing Commission reserves from the rollover schedule and market averages must be determined.
By following these preferred and required underwriting criteria as outlined by Pacific Security Capital, the Commercial Real Estate Office Loan application process will be much more manageable, and much less stressful.
About Pacific Security Capital:
Pacific Security Capital provides debt, equity and hybrid capital for the acquisition, development, construction, renovation, bridge, mezzanine, and permanent financing of commercial real estate projects requiring more than $1MM in financing. Pacific Security Capital is headquartered in Portland, Oregon with other offices in Seattle, LA, Chicago, Houston and New York. More information about the company can be found at http://www.PacificSecurityCapital.com .
For information about Pacific Security Capital visit: http://www.PacificSecurityCapital.com or contact Mike Myatt at mikem@PacificSecurityCapital.com
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