Beruflich Dokumente
Kultur Dokumente
Financial Leverage
What is financial leverage?
Benefit of borrowing at a lower interest rate
than the rate of return on the property.
Unleveraged BTIRR
Return with no debt
12-4
12-5
12-6
D/E =Debt/Equity
12-7
ATIRRD= ATIRRP
ATIRRD= BTIRRD(1-t)
BTIRRD= ATIRR D =
1 t
ATIRR P
1 t
Risk considerations
Break-even interest rate is not affected by LTV.
12-8
Underwriting Loans
Market Study and Appraisal
Borrower Financial Statements
Nonrecourse clause. If nonrecourse, its sort
of like the loan has a built in put option for the
borrower.
12-9
Underwriting Loans
Possible Mortgage Covenants
Approval of new leases by lender
Approval of lease modifications by lender
Approval of construction by lender
Borrower submits periodic updates of
financials
12-10
Underwriting Loans
Possible Mortgage Covenants
Annual property appraisal
Notify lender of legal problems
Notify lender when correcting property defects
Lender has right to visit
Underwriting Loans
Lockout Clause
Prohibits prepayment of loan for a specified period of
time
Lender motivations
Guaranteed minimum return and some protection
of real return
Investor motivations
Easier to meet debt service requirements
12-14
Motivations
12-15
Accrual Loans
Negative amortization
Pay Rate
Interest rate used to calculate loan payment
Accrual Rate
Interest rate used to calculate the interest charged
Convertible Mortgage
Lender has an option to convert debt to equity
Mezzanine Loan
Preferred Equity
12-17