How can that be done without seeing the hotel and interviewing management? The solution is TripAdvisor. Owners have a love/hate relationship with property review sites (mostly hate) because, as one owner said, “Anyone can post anything with no repercussions for misleading information.” Nevertheless, the CMBS conduit industry has developed a rule of thumb for well-run hotels in good condition using TripAdvisor reviews.

Type the name of the hotel in the “google” search bar followed by “TripAdvisor” and you will find a TripAdvisor link for the hotel. Click on it and then scroll down to the “Overview” section listing the percentage of reviews that are “Excellent,” Very Good,” “Average,” “Poor” or Terrible.”

If “Excellent” and Very Good” ratings combined (add the two percentages together) exceed 50% you have a hotel that is likely well run and in good shape, and it likely would be fine for a CMBS conduit loan. If the combination exceeds 75%, you are probably looking at one of the top hotels in the market that would be very easy to get approved for a CMBS conduit loan.

The post 4.11.18: A Quick Test to Determine Hotel Eligibility for a CMBS Conduit Loan appeared first on VALUEXPRESS - Commercial Mortgage Loans.

For example, if a borrower on a retail center says his most recent net cash flow after expenses is $1 million including a management fee and replacement reserve and the loan request is $10 million, then the debt yield is 10% ($1,000,000 divided by $10,000,000). The result can be compared with the minimum debt yield required for each asset type. If the calculated debt yield exceeds the minimum debt yield, preliminarily, the loan amount is acceptable.

The following are the minimum debt yields for each eligible asset type financed in CMBS:

More important, the debt yield formula can be reworked to indicate the loan amount. Suppose the same borrower in the example above said, “I have net cash flow after expenses of $1 million including a management fee and replacement reserve. How much can you lend me?” The calculation using debt yield would look like this: $1,000,000 (net cash flow) divided by 8.5% (the minimum debt yield for retail properties) equals $11,750,000 (rounded). So the borrower can be offered $11,750,000, which would meet minimum debt-service coverage and maximum loan-to-value requirements.

I often get a skeptical look from folks who are unsure of the accuracy of the debt yield method: What about market cap rates, debt-service coverage, appraised value and other metrics? How can all of these be incorporated into one metric? Well, it simply works.

The post 7.18.17: … While Using Debt Yield Allows for a Quick Size of a CMBS Conduit Loan appeared first on VALUEXPRESS - Commercial Mortgage Loans.

In its view, the drop in credit metrics from 2010 to 2011 is much starker than the change in top-level metrics that has taken place over the first three quarters of 2012. While it certainly has noted some negative trends, such as the increase in more highly levered interest only loans, CS does not, at least at this point, find these trends overly troubling.

That said, CS generally looked at overall trends in this analysis rather than individual deals. While the overall averages may have exhibited only small shifts, surely some deals are better underwritten than others.

Deals still need to be evaluated on a case-by-case basis, especially as investors gravitate further down the credit stack. CS has, for example, seen loans in some deals that have again been made using pro forma assumptions. While these may be justified on an individual basis, as they have learned in the past, it can be a slippery slope; a quirk in a single loan can quickly manifest itself to become a common trend across all deals.

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