Property that is exclusively used for business or as an investment opportunity. For example, a shopping center who’s tenants lease the space in which they conduct their business, thus generating income from rent.
In real estate, a capital advisor provides specific knowledge to a client in order to give them the maximum earning potential on their investment. By working very closely with lenders and investors, Tauro’s advisors are experts in streamlining the most profitable and fair financial strategy.
Fees are generally discussed between parties in the earlier stages of a deal. There is not a guaranteed, or fixed commission an advisor takes on every deal as it is contingent on a variety of different factors.
Any time someone needs sound financial advice in regards to getting a loan on a commercial real estate investment. Tauro provides its clients with the know-how of how to turn their financial dreams into reality by providing them with the chance to make their dream investment with fair and honest finance options.
Terms To Know
Common equity generally works by having an LLC, or a limited liability company act as the borrower in the loan and the acting collateral in the transaction is a portion of stock shares of said LLC. Common equity is considered the riskiest tranche in the capital stack due to the fact that common equity holders are at the bottom of the barrel when it comes to repayment. Where there is high risk there is often high reward, this remains true with common equity, with the highest average yearly return with no cap.
Preferred equity is the second highest on the capital stack. In preferred equity loans, lenders are prioritized above common equity lenders in regards to repayment, thus making it slightly less risky. Acquiring funding in preferred equity transactions is less limited than common equity as well, as borrowers can acquire funds through a multitude of methods. Adversely to common equity, there is a cap on annual returns from a preferred equity loan meaning there is less money to be made however, less risk involved.
Mezzanine debt functions strictly as a loan whereas preferred and common equity mainly serve as an investment. Generally speaking, mezzanine debt has a medium risk rate. It is the least safe form of debt but safer than both common and preferred equity. Mezzanine debt often requires little to no collateral from the borrower. Mezzanine debt loans typically will come at a higher interest rate than everyday bank loans, sometimes reaching 16% which, in turn, gives lenders the possibility to turn their debt into equity.
Senior debt is on the bottom of, or in the last spot on the capital stack. With the lowest risk factor, it shows the lowest return; however, it ensures that the lender gets paid back, hence the term “senior.” The debt holder, in senior debt loans reserves the right to reclaim title of the property and sell it if the owner defaults. Due to its low risk factor, senior debt loans are readily available and offered by many banking institutions. Due to its appealing payment options, senior debt is one of the most popular types of loans in commercial real estate.
An SBA or Small Business Association loan is conducted through the U.S. SBA’s 504 Loan Program and its prerogative is to provide the funding that was previously only available to large corporations to small businesses. With low interest, long-term, fixed rate financing, small business owners are able to equip their companies with new and improved technology, office renovations, or even new land for new offices through the SBA 504 loan program.
PACE, or property assessed clean energy loans are given to companies and commercial real estate owners who are trying to make their properties more energy efficient. Improvements to energy efficiency, water conservation, and solar energy are just some of the ways in which one can obtain the necessary requirements to qualify for a PACE loan. The loans are repaid long term through one's property tax and financial obligations are transferred with title. If you would like to find out how to qualify for such a loan, please get in contact with us here.
Construction loans are short-term financing used to sustain the expenses of building a new property, from multifamily apartment buildings to a highrise skyscraper to a warehouse designated for tire storage. Construction loans differ from most other types of loans in that the borrower does not initially receive the loan in its entirety. As new progress points in the construction project are reached, more money is lent out. Construction loans typically are given out at 3-6% interest rates at 50%-75% LTC. If you would like help getting a construction loan for your latest investment, contact Tauro here.
Bridge loans are short-term loans used for the purchasing, repurposing, and rehabilitation of property. Bridge loans focus on the loan-to-cost ratio (LTC) as they concern the property’s future value. This carries more risk therefore, interest rates are generally higher on bridge loans than on construction loans for example. For more information on how to obtain a bridge loan at the best value.
A Lender typically has three metrics by which a loan is measured; Loan-to-Value (LTV), Debt Service Coverage Ratio (DSCR), and Debt Yield (DY). The Lender will have requirements for each of the three metrics (e.g., 65% LTV, 1.30x DSCR, 8.0% DY). LTV is a maximum requirement while DSCR and DY are minimum requirements. The maximum loan offered by a Lender will be the minimum Loan amount which conforms to each of the three metric requirements.
LTV is a percentage calculated by dividing the Loan amount by the appraised value of the property.
DSCR is a ratio calculated by dividing the annual NOI After Capital Reserves by the annual Debt Service of the Loan.
DY is a percentage calculated as the annual NOI After Capital Reserves by the Loan amount.
Closing can typically take 30 to 90 days but may take longer depending on the financial institution and type of loan program. Agency loans such as Fannie and Freddie have extended underwriting timelines and multiple levels of reviews. Those transactions can frequently take 90-180 days to close.
Once a borrower has signed a Letter of Intent (LOI) with a lender or finance provider, a detailed due diligence list of required documents is circulated to be satisfied. These can vary from tax returns and financial statements to rent rolls, environmental reports, and zoning letters specific to the property. All documents are reviewed by Tauro internally before submission. Tauro is also the focal point for changes and structuring recommendations. Once all items are submitted, the loan will be forwarded to an underwriter for review. It’s very common to see additional document requests once an underwriter has been assigned and review has been initiated.
Tauro serves as the primary point of contact for all parties involved in the transactions. Title, Escrow, Legal, Appraisal and other third-party business partners are coordinated by an internal single point of contact that oversees all aspects of the closing process.
The expense deposit is intended to cover things like legal fees and third-party reports. Lender will need a deposit up front to order all related reports and will reimburse the remainder of the deposit if the total doesn’t exceed the requested amount.