Financial Models

Commercial Loan Underwriting: Which Constraint Sizes the Loan

Build NOI and NCF from rent, value the property, size the loan three ways (LTV, DSCR, Debt Yield), and see which one binds, how much room the others leave, and whether a requested loan passes.

Licensed under CC BY 4.0. Share and adapt it, commercially too, as long as you credit Globalbiz CRE Academy. What is open and what is not: License.

Part of Loan Sizing

Loan Amortization: Interest, Principal and the Balloon

Compute the monthly payment from the amortization period, split it into interest and principal in the first and the last month of the term, follow the interest, principal and balance year by year, and see the balloon left at maturity.

Licensed under CC BY 4.0. Share and adapt it, commercially too, as long as you credit Globalbiz CRE Academy. What is open and what is not: License.

Part of Amortization

From Rent to NOI, NCF and Cash-on-Cash Return

Build net operating income line by line from gross potential rent, take out the replacement reserve to reach net cash flow, pay a year of debt service, and divide what is left by the equity invested.

Licensed under CC BY 4.0. Share and adapt it, commercially too, as long as you credit Globalbiz CRE Academy. What is open and what is not: License.

Part of Cash-on-Cash Return

Capital Stack: Sources and Uses, Loan-to-Cost and Loan-to-Value by Layer

Add up everything an acquisition costs at closing, fund it with a senior loan, mezzanine debt, preferred equity and common equity, check that sources equal uses, and measure each layer against cost and against value.

Licensed under CC BY 4.0. Share and adapt it, commercially too, as long as you credit Globalbiz CRE Academy. What is open and what is not: License.

Part of Capital Stack Overview

Direct Capitalization: Cap Rates From Comparable Sales, and Value on the Appraiser's NOI

Extract a cap rate from three comparable sales, take the replacement reserve off the NOI the way an appraiser does, capitalize that income into value, and see how much value a lender's NOI would add if it were capitalized at an appraiser's rate.

Licensed under CC BY 4.0. Share and adapt it, commercially too, as long as you credit Globalbiz CRE Academy. What is open and what is not: License.

Part of Income Approach (Direct Capitalization)

Net Effective Rent: One Lease, Two Methods

Take an executed office lease's rent schedule, free rent, tenant improvement allowance and leasing commission, and compute its net effective rent two ways: the straight-line average public REITs report, and the present value a lease or a public tenant uses to compare offers.

Licensed under CC BY 4.0. Share and adapt it, commercially too, as long as you credit Globalbiz CRE Academy. What is open and what is not: License.

Part of Tenant Improvement Allowance (TIA)

Levered Acquisition DCF: What the Deal Returns

Project NOI and cash flow year by year, sell at an exit cap rate on the following year's NOI, pay off the loan, and see the unlevered and levered IRR, the NPV at your discount rate, and how much of the return comes from operations versus the sale.

Part of DCF (Discounted Cash Flow) Valuation Approach

Equity Waterfall: Who Gets What from the Deal

Continue the levered DCF: split its equity cash flow between the investor and the sponsor through a preferred return and a two-tier promote, both set by IRR hurdles, and see each side's IRR, multiple and the promote in dollars.

Part of Equity Waterfalls & the Promote