Commercial Real Estate Loans

        CRE Loans primarily aim to finance income-producing properties such as offices, retail centers, warehouses, apartments, and hotels. They also play a critical role in funding the development or renovation of commercial assets. The collateralization of the Loan against the property itself offers security and assurance for both parties involved.

Core Characteristics:

• Purpose:

- Financing income-producing properties (e.g., offices, retail centers, warehouses, apartments, hotels).

- Funding development/renovation of commercial assets.

• Collateral:

- The property itself secures the Loan

• Who do we source funding for?:

- Typically, business entities (LLCs, corporations, investors, developers), etc...

• Key Underwriting Metrics:

- Debt Service Coverage Ratio (DSCR): Minimum 1.20–1.35x (Net Operating Income ÷ Loan Payments).

- Loan-to-Value (LTV): Usually capped at 75 – 95%.

• Loan Structures:

- Term: 5–20 years, often with a balloon payment.

- Interest: Often variable

- Recourse: Non-recourse loans (no personal liability) are common for stabilized properties.

Why CRE Loans Are Unique:

• Cash Flow Driven: Loan approval hinges on the property’s income potential, not the borrower’s

• Higher Stakes: Loan sizes range from $500,000 to $100M+ with stricter regulations.

• Market Sensitivity: Vulnerable to economic shifts (e.g., remote work impacting offices, e-commerce affecting retail).

Risks to Consider:

• Refinancing Risk: Balloon payments may require re-qualifying in a tighter credit market.

• Interest Rate Risk: Rising rates increase borrowing costs (most CRE loans have floating rates).

• Tenant Vacancy: Loss of tenants directly threatens debt repayment.

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