Real Estate Loans and Financing Terms, Quizzes of Real Estate Management

Download Real Estate Loans and Financing Terms and more Quizzes Real Estate Management in PDF only on Docsity! TERM 1 Balloon mortgage DEFINITION 1 Another name for a balloon loan. TERM 2 Break-even ratio DEFINITION 2 The sum of operating expenses, capital expenditures, and debt service divided by potential gross income, this ratio measures the ability of a property to cover its obligations. TERM 3 Construction loans DEFINITION 3 Loans used to finance the costs associated with erecting the building or buildings. TERM 4 Correspondent relationship DEFINITION 4 A business relationship in which a large lender agrees to purchase loans or to consider loan requests from a mortgage banker or mortgage broker. TERM 5 Debt coverage ratio (DCR) DEFINITION 5 A measure of the extent to which NOI can decline before it is insufficient to service the debt, defined as net operating income over debt service. TERM 6 Defeasance DEFINITION 6 A clause that may be contained in commercial mortgages to protect lenders from prepayments in a declining interest rate environment. With this, a borrower who prepays must purchase for the lender a set of U. S. Treasury securities whose coupon payments exactly replicate the cash flows the lender will lose as a result of the prepayment of the mortgage. TERM 7 Due diligence DEFINITION 7 After a buyer and seller have agreed on a purchase price, the buyer is provided time to verify the information that has been provided by the seller. For example, the buyer will want to verify the magnitude of certain operating expenses, the current rent charged to tenants, the lack of environmental problems, etc. TERM 8 Financial risk DEFINITION 8 The risk NOI will be less than debt service. TERM 9 Floating-rate mortgage DEFINITION 9 A debt instrument whose interest rate changes over the life of the loan based on a market index such as the prime rate or LIBOR. TERM 10 Installment sale DEFINITION 10 Financing arrangement, commonly used to defer taxes due on the sale of commercial property, where the seller allows the buyer to pay the purchase price over a number of years. TERM 21 Rate lock agreement DEFINITION 21 An agreement in which a loan applicant pays a nonrefundable deposit to protect against an interest rate increase before the loan is closed. TERM 22 Reinvestment risk DEFINITION 22 The risk that lenders will need to reinvest the remaining loan balance at a lower rate when borrowers prepay mortgages with above-market rates. TERM 23 Sale-leasebacks DEFINITION 23 Agreements in which a property owner simultaneously sells the property to a buyer and leases the property back from the buyer. TERM 24 Second mortgage DEFINITION 24 The market where mortgage originators can divest their holdings, and existing mortgages are resold. TERM 25 Yield-maintenance agreements DEFINITION 25 A mortgage loan prepayment penalty computed as the present value of interest income to be lost by the lender due to the early prepayment. The idea is to "make whole" the lender. Are found strictly in loans on income-producing properties. TERM 26 Equity REITs DEFINITION 26 Real estate investment trusts that invest in and operate income-producing properties. TERM 27 Limited liability company (LLC) DEFINITION 27 A hybrid form of ownership that combines the corporate characteristics of limited liability with the tax characteristics of a partnership. TERM 28 Pension funds DEFINITION 28 Retirement savings accounts that now represent a major source of equity capital in commercial real estate markets. TERM 29 Real estate investment trusts (REITs) DEFINITION 29 A corporation or trust that uses the pooled capital of many investors to purchase and manage income property (equity REIT) and/or mortgage loans (mortgage REIT). TERM 30 Securitized investments DEFINITION 30 Investment instruments that pool investment assets, enabling investors to purchase a share in the pool of assets. TERM 31 Syndicate DEFINITION 31 A group of persons or legal entities who come together to carry out a particular investment activity.