Credit Factors in Commercial Real Estate

Repayment capacity (expressed in debt service coverage ratio, DSCR); amount and quality of collateral (generally calculated utilizing an appraisal, expressed in loan to value ratio, LTV); principal credit (principal(s)' credit score, past payment history, bankruptcy history, foreclosure history, crime history, etc.); guaranty or lack of guaranty (recourse), and if a guaranty then the quality of the guaranty (guarantors' net worth, unrelated cash flow, liquidity, contingent liabilities, credit score, repayment history, bankruptcy and foreclosure history, criminal history); macro and micro economic factors (state of the economy, vacancy rate trends, regulatory conditions, etc.); property condition; lender guidelines (i.e. your organization may place limits on DSCR, LTV, guaranties, etc.).

When in doubt, remember the 4 C's of credit--character, capacity, capital, collateral. Keep in mind that some things may not be relevant (or as relevant) to some lenders. For example, guaranty or guaranty quality to say, large, non-recourse (or recourse) lenders who generally deal with institutional investors may be less decisive than with a $1 million CRE loan issued by a commercial bank.

It can and does go deeper within each category (e.g. not all 70% LTV loans are the same since some collateral is more liquid than others; calculated DSCR can be somewhat subjective and may require a skilled analyst to manipulate the pro forma), but for an interview the above information is sufficient.