Commercial real estate finance and the lending cap rate

IF 1.6 Q3 BUSINESS, FINANCE Journal of Property Investment & Finance Pub Date : 2021-12-20 DOI:10.1108/jpif-10-2021-0081
J. Stokes, Arthur T. Cox
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Abstract

PurposeThe aim of this study is to report on a simple derivation that results in what the authors refer to as the lending cap rate. The lending cap rate is a unique cap rate resulting in a property valuation that perfectly aligns the maximum loan amount for the financing of commercial real estate.Design/methodology/approachThe derivation is the result of simple algebra relating the two most common underwriting ratios: debt service coverage and loan-to-value with the formula for the present value of an annuity. Numerical examples are presented to demonstrate the calculation of the lending cap rate, property valuation and maximum loan amount. The authors also present comparative statics results.FindingsThe main finding of this research is that once a lender knows the debt service coverage ratio, loan-to-value ratio and lending terms for a specific property financing request, a simple calculation reveals the lending cap rate and the property valuation that aligns the maximum loan amount implied by the two underwriting ratios.Practical implicationsOne practical implication of the research is that a simple calculation reveals the lending cap rate which facilitates timely property evaluations for lending purposes. The methods demonstrated also offer real estate finance educators a practical means of connecting the loan underwriting process with property appraisal thereby facilitating conceptual understanding.Originality/valueThe key finding is original, and the importance of the finding is that the determination of the lending cap rate is simple and has the ability to make commercial real estate lending faster and cheaper, especially in lending situations where an evaluation rather than an appraisal is appropriate.
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商业地产金融贷款上限利率
目的本研究的目的是报告一个简单的推导,得出作者所说的贷款上限利率。贷款上限利率是一种独特的上限利率,可使房地产估值与商业房地产融资的最高贷款金额完美匹配。设计/方法/方法该推导是将两种最常见的承保比率(偿债覆盖率和贷款价值比)与年金现值公式联系起来的简单代数的结果。通过算例说明了贷款上限利率、房地产估价和最高贷款额的计算。作者还介绍了静力学的比较结果。发现这项研究的主要发现是,一旦贷款人知道特定房地产融资请求的偿债覆盖率、贷款价值比和贷款条款,一个简单的计算就会揭示贷款上限利率和房地产估值,这两个承销比率所隐含的最大贷款额是一致的。实际含义研究的一个实际含义是,一个简单的计算就可以揭示贷款上限利率,这有助于为贷款目的及时进行房地产评估。所展示的方法还为房地产金融教育工作者提供了一种将贷款承销过程与房地产评估联系起来的实用方法,从而促进概念理解。独创性/价值关键发现是独创性的,该发现的重要性在于,贷款上限利率的确定很简单,能够使商业房地产贷款更快、更便宜,尤其是在适合评估而非评估的贷款情况下。
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来源期刊
CiteScore
3.50
自引率
23.10%
发文量
33
期刊介绍: Fully refereed papers on practice and methodology in the UK, continental Western Europe, emerging markets of Eastern Europe, China, Australasia, Africa and the USA, in the following areas: ■Academic papers on the latest research, thinking and developments ■Law reports assessing new legislation ■Market data for a comprehensive review of current research ■Practice papers - a forum for the exchange of ideas and experiences
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