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Commercial Lending Terminology:
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The following terms are applicable to a conventional bank as well as to a bridge
loan company and a commercial hard money lender.
A
ACREAGE – a 2 dimensional measure of land equaling 160 square
rods, 10 square chains, 4,840 square yards, or 43,560 square feet.
ADJUSTABLE RATE MORTGAGE – a mortgage with an interest rate
that changes periodically, according to an index that is selected when the mortgage
is issued. The initial interest rate is lower than that of fixed–rate mortgages,
but monthly payments can go up or down as the rate is adjusted.
ADJUSTMENT INTERVAL – the period of time between changes
in the interest rate for an adjustable–rate mortgage. Typical adjustment
intervals are 6 months and one year.
AMENITIES – in appraisal, the non–monetary benefits derived
from property ownership.
AMORTIZATION PERIOD – the period or length of time over which the principal
portion of a mortgage loan is scheduled to be paid down through periodic payments.
ANCHORED – a piece of commercial real estate property, which
will serve as the main
tenant in a shopping center.
ANCHORS – all long term, credit worthy tenants.
APPRAISAL – an estimate of the value of a property, made by a
qualified professional
called an appraiser.
ASSISTED LIVING – type of senior housing that is typified by
independent living and limited assistance to its renters.
ASSUMABILITY – a mortgage loan which can be transferred to another
person without a change in the terms of the loan.
AVAILABLE SF – the square feet available for lease.
AVERAGE ANNUAL OCCUPANCY – percentage of currently rented units
in a building, city, neighborhood or complex.
AVERAGE DAILY RATE – a hotel rate used to evaluate the average
daily rate of a hotel
inclusive of vacancy and seasonality.
BALLOON PAYMENT – one large payment for the remaining principal
balance of a mortgage, due at a time specified in the contract.
BASIS POINT (BP) – 1/100th of 1% expressed as a margin over an
index rate.
BORROWING ENTITY TYPE – the legal form under which property is
owned.
BRIDGE/SHORT TERM LOAN – a short–term or interim loan for
borrowers who need more time to find permanent financing or are repositioning a
commercial property.
BUILDING PERMIT – a document, issued by government regulatory
authority that allows a builder to construct or modify a structure.
BUILDING SF – the usable square footage of the building.
CAP – the maximum, which an adjustable–rate mortgage
may increase, regardless of index changes. An interest rate cap limits the amount
the interest can change, while a payment cap limits the increase in monthly payment
to a specific dollar amount.
CAPITAL EXPENDITURES – line items on a profit and loss statement
that would not be
expensed on an annual basis. This category would include replacement of major
building systems, such as roofs, etc.
CAPITALIZATION RATE – the ratio of the first year NOI to the
asking price (NOI/Asking price). Not the rate of return.
CARVE OUT – the definition used for the inclusion of recourse
in loan documents for fraud and misrepresentation.
CASH OUT REFINANCING – when the principal amount of a new mortgage
involved in refinancing is greater than the principal amount outstanding of
the existing mortgage being refinanced, and all or a portion of the equity is converted
to cash.
CENTRAL BUSINESS DISTRICT (CBD) – the downtown section of a city,
generally consisting of retail, office, hotel, entertainment, and government land
uses with some high–density housing.
CLEARANCE – the distance between the building’s floor and
effective storage ceiling.
CLIMATE CONTROLLED – an industrial and self–storage term
that represents temperature controlled commercial space.
CLOSING – the meeting between the buyer, seller and lender (or
their agents) where the property and funds legally change hands.
CLOSING COSTS – the costs and fees associated with the official
change in ownership of the property and with obtaining the mortgage, that is
assessed at the closing.
CMBS (Commercial Mortgage Back Security) – a bond or other financial
obligation secured by a pool of mortgage loans.
COFI (Cost of Funds Index) – index used to determine interest
rate changes for adjustable rate mortgages. It is based on the cost of funds
of the 11th District of the Federal Home Loan Bank.
COMMERCIAL LAND – development and transitional
land acquired for investment use: land for lots, site selection and assemblage
of parcels.
COMPARATIVE MARKET ANALYSIS – an estimate of the value of a property
based on an analysis of sales of properties with similar characteristics.
CONDUIT – the financial intermediary that sponsors the conduit
between the lender(s) originating loans and the ultimate investor. The conduit makes
or purchases loans from third party correspondents under standardized terms, underwriting
and documents and then, when sufficient volume has been obtained, pools the loans
for sale to investors in the CMBS market.
CONGREGATE CARE – a type of senior housing that typified by a
central eating facility, smaller rooms, and a higher level of care for its
tenants.
CONSTANT MATURITY TREASURE (CMT) – an index based on the U.S.
Treasury that is used in the pricing of debt for banks.
CONSTRUCTION LOAN – a short term loan to pay for the construction
of commercial buildings. These loans typically provide periodic disbursements
to the builder as each stage of the building is completed. When construction is
completed a take–out or permanent loan is used to pay off the construction
loan.
CONSTRUCTION TYPE – the type of construction used for a commercial
building, (i.e. concrete tilt–up, etc.).
CONTINGENCY – an element of an agreement that must be satisfied
before the total agreement can be consummated.
COUPON – the coupon on U.S. Government securities expressed as
an annual percentage of face value, is the interest rate the U.S. Government
promises to pay to the holder on an ongoing basis until maturity.
CREDIT TENANT – a tenant, who has obtained a debt rating by S&P
or Moody’s of "BBB–" or better.
CREDIT TENANT NET LEASE – a lease with a tenant that has a credit
rating of BBB– or better.
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