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Cap Rates and Factors Beyond Debt Coverage and Loan-to Value


Price: $275

Presenter: Richard Hamm, Advantage Consulting & Training

Can you identify the factors that cause cap rates to increase or decrease? How can you mitigate the risk posed by properties with short leases and underlying loans with long amortizations (re-lease or rollover risk)? Whether directly financing commercial real estate (CRE) or including CRE income stream(s) in your overall credit analysis of a borrower, it is important to understand key analytical concepts in evaluating CRE beyond the cash flow and debt service coverage (DSC) and loan-to-value (LTV) ratios. This program covers how capitalization (“cap”) rates are derived and their role in the income approach to CRE market value. It demonstrates (from a case study) how bankers can estimate property values as part on ongoing monitoring of CRE loans. We also cover the qualitative or non-financial issues that affect CRE performance, including re-lease and rollover risk.

Specific subjects that will be covered during the seminar:

  • Understanding cap rates and how they are used to link cash flow to property value
  • Using cap rates along with the cash flow as part of ongoing loan monitoring, including estimated property values, not in lieu of appraisals, but as a key part of the overall CRE process
  • Six non-financial or qualitative risks with CRE lending (re-lease and roll-over risk, for example)
  • Other characteristics of CRE that affect ongoing property value

Target Audience: Commercial lenders, credit analysts and small business lenders; consumer lenders, mortgage bankers and private bankers; loan review specialists, special assets officers, lending managers and credit officers