Lenders -- What are some of the various risks you look for at an asset level when evaluating a deal?

To all the lenders/analysts at banks, lifecos, debt funds, etc. -- What are some of the various risks you look for at an asset level when evaluating a loan application? Thanks

 

Not sure what exactly you're asking but you would want to at least look at the below and structure around issues if possible. For example, if there is heavy roll in the year 3 of the loan term you would want to try to sweep cash for a TI/LC reserve.

Asset level (not including DD or sponsor):

-New supply, tenant rollover, tenant credit, loan basis PSF, quality of market and submarket and MSA trend

-debt metrics: internal DY and DSCR requirements, LTV/LTC thresholds

-Sensitivities: breakeven rent, breakeven occupancy, loan payoff /takeout sensitivity (rate increase, estimated DSCR at maturity, estimated LTV/LTC at loan maturity, etc.)

 
dee91091444:
Hi, to calculate breakeven occupancy, is the formula total expenses plus total debt service and divide it by total potential rental income? Is there any other way you calculate it? Thank you!

Breakeven occupancy is the occupancy level in which (Income - Expenses - Debt Service) is positive. "Breaking Even," or zero, so to say. Positive cash flow means your debt service coverage is above 1.0, which prevents you from having to tap into any interest reserve or anything of the sort. Plus, positive cash flow is just generally a good thing.

Commercial Real Estate Developer
 
Best Response

Voluptas explicabo consequuntur aliquid libero corrupti hic quisquam. Velit amet laborum omnis veritatis.

Autem ut quia beatae sunt quis. Accusamus velit quidem labore ea. Minus dolores nesciunt totam. Id sit eos omnis ratione qui. Nemo fugiat illum et nulla in nihil aut.

Career Advancement Opportunities

March 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. (++) 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 03 97.1%

Overall Employee Satisfaction

March 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

March 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

March 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (19) $385
  • Associates (86) $261
  • 3rd+ Year Analyst (13) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (66) $168
  • 1st Year Analyst (202) $159
  • Intern/Summer Analyst (144) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Secyh62's picture
Secyh62
99.0
3
Betsy Massar's picture
Betsy Massar
99.0
4
BankonBanking's picture
BankonBanking
99.0
5
kanon's picture
kanon
98.9
6
DrApeman's picture
DrApeman
98.9
7
dosk17's picture
dosk17
98.9
8
CompBanker's picture
CompBanker
98.9
9
GameTheory's picture
GameTheory
98.9
10
numi's picture
numi
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”