We are in the business of providing loan quotes for CMBS conduit loans. To do this requires loan sizing. Here’s the detailed method we use:
CMBS conduit loans are based on the amount of property cash flow. To determine the maximum loan amount that can be offered to a borrower, CMBS loan underwriters perform cash flow analysis on the property. This is often referred to as “loan sizing.”
ValueXpress has sophisticated loan sizing models for each asset type that can be financed in CMBS (multifamily, commercial, hospitality and self-storage) in which market capitalization rates, minimum debt-service coverage and maximum loan-to-values (LTV) for each asset type are built into our models. The models also have CMBS industry-standard vacancy factors, management fees and replacement reserves built in.
“The results produced by our loan sizing models are very accurate and highly reliable in determining the maximum loan amount that can be offered to a borrower,” commented Michael D. Sneden, Executive Vice President at ValueXpress.
“But loan sizing takes a lot of time,” notes Jim Brett, head of underwriting at ValueXpress. “For a commercial property, I have to input the property rent roll including all the lease terms. Plus I need to input the most recent 12 months’ income and expenses for the property and the prior 3 years as well. This can take two to three hours.”
Borrowers sometime won’t wait or cannot readily provide all the data to perform detailed loan sizing. Plus, we don’t want to spend the time sizing deals that will not reach the requested loan amount, so we use the “debt yield” method as an alternative to give a borrower quick CMBS loan terms.