Christopher Hills, Managing Dir. Commercial Lending

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By: Dees Stribling, Contributing Editor, CPN ONLINE

"Right now, we believe there is insufficient systemic capacity to refinance expiring, performing commercial real-estate loans," reads a letter from a dozen commercial real estate trade groups to Treasury Sec. Henry Paulson, according to the Wall Street Journal this morning. In other words, the commercial side of the business, long perceived as relatively healthy compared with the residential side, is warning of dire straits ahead unless refinancing money is available in the near future.

Money from where? The new $200 billion bailout recently cooked up by Paulson (pictured) and his people to infuse liquidity in the student, car and credit-card loan market, that's where. TheWSJ cites research by Foresight Analytics L.L.C., an Oakland-based firm, that says that $160 billion in commercial mortgages will need refinancing by the end of 2009. With CMBS in a coma, and banks and other customary lenders stuffing their mattresses rather than lending, getting all those deals done will be problematic.

Walgreen Co. has once again scaled down its store-opening plans in the wake of shrunken profits. For the Chicago-based retailer's fiscal quarter ended Nov. 30, profits were $408 million, or 41 cents a share, down from $456 million, or 46 cents a share for the same period last year. Same-store sales, an important retail metric, did manage to eke out an increase of 1.7 percent compared with the same quarter last year. But the same quarter last year had scored growth of 5.4 percent compared with a year before that.

The company says it will reduce its rate of new store openings to 4 to 4.5 percent in 2010 and 2.5 to 3 percent in 2011. That may be growth, but it's anemic compared with the chain's historic average annual growth of about 8 percent.

In fiscal 2009, the company says it will open 495 new stores, compared with 629 new stores in fiscal 2008. The decision, taken as consumers pare back their own spending, is bound to have a ripple effect on retail space leasing as well as the net-lease property market, since Walgreens--which lease 14,500 square feet on average--typically either anchor small shopping centers or operate as stand-alone corner properties.

Nevada used to be the go-go state in terms of population growth, which was one of the factors driving its real estate bubble in the early- to mid-2000s. Now the U.S. Census Bureau is reporting that the state's growth rate has been cut in half in two years' time. Nevada was the fastest-growing state in the union from July 1, 2005 to July 1, 2006, posting a 3.5 percent population increase during that period. From mid-06 to mid-07, the rate was 2.9 percent. From mid-07 to mid-08, the state's population grew by 1.8 percent-- now the eighth highest among the states. For nearly a quarter century beginning in the 1980s, the state had always been among the top four states for population growth every year.

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We have Money to lend!!! We are in all 50 States and provide Great Service, are Honest and Show Professionalism.

The above information regarding Commercial was provided by Christopher Hills, the Vice President for In-Vision Financial Holdings, LLC. Chris can be reached via email at chris.hills@in-visionfinacial.com or by phone at 508-377-5872 x 704.

I am dedicated to helping you find the right financial solution for the purchase or refinance of your next project

For Commercial/Residential Loans nationwide see In-Vision Financial Holdings

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We have Money to lend!!! We are in all 50 States and provide Great Service, are Honest and Show Professionalism.

The above information regarding Commercial lending was provided by Christopher Hills, the Senior Vice President for In-Vision Financial Holdings, LLC. Chris can be reached via email at chris.hills@in-visionfinacial.com or by phone at 508-377-5872 x 704.

I am dedicated to helping you find the right financial solution for the purchase or refinance of your next project

For Commercial Lending nationwide see In-Vision Financial Holdings

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To see the # 1 Commercial Correspondent lender in the US

In-Vision Financial Holdings

Debt Service Coverage Ratio (DSCR)

The most important ratio to understand when making income property loans is the debt service coverage ratio. It equals Net Operating Income (NOI) divided by Total Debt Service. To understand the ratio it is first necessary to understand the numerator and the denominator. Let's take a look at net operating income (NOI) first.

Net operating income is the income from a rental property left over after paying all of the operating expenses:

Please note that lenders always insist on some sort of vacancy factor regardless of the actual vacancy rate in an area to cover collection loss. In addition lenders always insist on using a management factor of 3-6% of effective gross income, even if the property is owner-managed. Their logic is that they would have to pay for management if they took back the property. Finally, NOTE THAT WE HAVE NOT INCLUDED LOAN PAYMENTS AS AN OPERATING EXPENSE.

Next let's look at the denominator, Total Debt Service. This includes the principal and interest payments of all loans on the property, not just the first mortgage. NOTE THAT WE HAVE NOT INCLUDED TAXES AND INSURANCE. They were already accounted for above when we arrived at net operating income (NOI).

To calculate the debt service coverage ratio, simply divide the net operating income (NOI) by the mortgage payment(s). For the sake of simplicity, let us assume that there is only one mortgage on the property:

$500,000 First Mortgage
11% Interest, 30 years amortized
Annual Payment (Debt Service) = $57,139

Then:
DSCR = Net Operating Income (NOI) = $65,000
Total Debt Service $57,139
DSCR = 1.14

Obviously the higher the DSCR, the more net operating income is available to service the debt. From a lender's viewpoint it should be clear that they want as high a DSCR as possible.

The borrower, on the other hand, wants as large a loan as possible. The larger the loan, the higher the debt service (mortgage payments). If the net operating income stays the same, and the loan size and therefore the debt service increases, then the lower the DSCR will be.

Life insurance companies are very conservative and generally require a 1.25 or 1.35 DSCR. This means that their loan-to-value ratios are low. Savings and loans (S&L's) generally only require a 1.20 DSCR, and sometimes will accept a DSCR as low as 1.10.

A DSCR of 1.0 is called a break even cash flow. That is because the net operating income (NOI) is just enough to cover the mortgage payments (debt service).

A DSCR of less than 1.0 would be a situation where there would actually be a negative cash flow. A DSCR of say .95 would mean that there is only enough net operating income (NOI) to cover 95% of the mortgage payment. This would mean that the borrower would have to come up with cash out of his personal budget every month to keep the project afloat.

Generally lenders frown on a negative cash flow. Some lenders will allow a negative cash flow if the loan-to-value ratio is less than around 65%, the borrower has strong outside income such as an electronic engineer, and the size of the negative is small. Lenders rarely allow negative cash flows on loans over $200,000.

____________________________________________________________________________

We have Money to lend!!! We are in all 50 States and provide Great Service, are Honest and Show Professionalism.

The above information regarding Commercial was provided by Christopher Hills, the Vice President for In-Vision Financial Holdings, LLC. Chris can be reached via email at chris.hills@in-visionfinacial.com or by phone at 508-377-5872 x 704.

I am dedicated to helping you find the right financial solution for the purchase or refinance of your next project

For Commercial/Residential Loans nationwide see In-Vision Financial Holdings

----------------------------------------------------------------

To see the # 1 Commercial Correspondent lender in the US

In-Vision Financial Holdings

_

____________________________________________________________________________

We have Money to lend!!! We are in all 50 States and provide Great Service, are Honest and Show Professionalism.

The above information regarding Commercial was provided by Christopher Hills, the Vice President for In-Vision Financial Holdings, LLC. Chris can be reached via email at chris.hills@in-visionfinacial.com or by phone at 508-377-5872 x 704.

I am dedicated to helping you find the right financial solution for the purchase or refinance of your next project

For Commercial/Residential Loans nationwide see In-Vision Financial Holdings

----------------------------------------------------------------

To see the # 1 Commercial Correspondent lender in the US

In-Vision Financial Holdings