Question

17. When considering a loan, what is the lender looking for as it relates to the sponsorship?

1. Experience in ownership/management of commercial properties
2. Conservative levels of DSCR and LTV throughout the existing portfolio of properties owned by the borrower
3. Good quality credit profile
4. All of the above

18. Once the term sheet is signed and the process leading up to the closing of the loan begins, which third party report takes the longest to prepare and therefore ordered first by the lender?

1. Environmental and Engineering
2. Appraisal
3. Zoning
4. None of the above

19. A developer purchases a piece of land on which (s)he plans to build a 30-unit multifamily building with 4 retail spaces on the ground floor. What type of loan is (s)he most likely to get for the construction period?

1. Short term construction (bridge) floating rate loan
2. 10-year fixed rate loan with a 30-year amortization schedule
3. 5-year fixed rate first mortgage
4. None of the above

20. What are the main points to look for in the term sheet?

1. Loan amount and maximum LTV
2. Interest rate, loan term and prepayment penalty
3. Borrower’s experience qualification requirements
4. a and b
5. All of the above

Answer 1

1. All of the above.

Experience in ownership/management of commercial properties ensures that the sponsor/borrower would have caliber to make the project successful eliminating the risk of default.

Conservative levels of DSCR and LTV throughout the existing portfolio of properties owned by the borrower. This ensures that the sponsor/borrower has enough money to pay back its loan obligations on time.

Good quality credit profile. This ensures that the sponsor has a strong and supportive history of making payments on time.

2. Environment and Engineering

Out of the given options, Environment and Engineering report is the third party report that requires longest duration since it involves huge amount of ground research work that involves multiple government authorities.

3. 10-year fixed rate loan with a 30-year amortization schedule

Since this type of loan ensures future earnings for next 10 years for the lender along with reduced risk of default due to the longer pay-back period resulting in shorter periodic payments, it is more likely to get approved compared to other two.

4. a and b

From a borrower’s point, “Loan amount and maximum LTV” and “Interest rate, loan term and prepayment penalty” are the two main points that every borrower would be interested to know as it directly impacts him/her. The third point is more for lender and hardly matters to borrower.