Articles by
Jeff Hamann
Janover's editorial director, Jeff Hamann, has written extensively about all things CRE since 2017. He previously worked as an editor for Commercial Property Executive and Multi-Housing News. Prior to his journalism experience, Jeff worked as a human resource analyst, a musician, a teacher, and a war-time conflict mediator across eight countries. He currently lives with his wife and two children in The Netherlands, where he's failing at learning Dutch while avidly training for his next marathon.
7 Tips to Keep Your Office Portfolio Recession-Proof
Is office safe in a recession? Find out some steps you can take to ensure your commercial real estate portfolio weathers what's on the horizon.
4 Commercial Property Loans for Borrowers With Bad Credit
Has your credit score taken a hit? That doesn’t mean there aren’t options for your next commercial real estate acquisition, development, or refinance.
Get Better Loan Terms With a Commercial Mortgage Alert
When looking for your next commercial real estate loan, it can pay dividends to keep up to date on what's happening in the financing world. Find out more on the blog.
Understanding the Difference Between Fannie Mae and HUD Multifamily Loans
HUD and Fannie Mae loans are two of the strongest and most popular financing options out there for multifamily real estate. What's the difference between them?
5 Methods for Handling Balloon Payments
If you have a partially amortizing loan, you no doubt have a balloon payment awaiting you at maturity. Find out five ways of handling these lump-sum payments.
8 Reasons Why You Should Consider an Agency Loan
Agency loans are multifamily loans backed by government-sponsored enterprises such as Fannie Mae or Freddie Mac. Here's what makes them stand out.
5 Considerations for Taking an Office Loan
Looking to finance an office building? There’s lots to think about, but don’t overlook these five key elements.
Is Non-Recourse Financing Right for You?
There are plenty of advantages and disadvantages that come with non-recourse financing for your commercial real estate property. Find out if this type of loan fits your needs.
How Do Wage Requirements Impact HUD Projects?
The nearly century-old Davis-Bacon Act requires that workers on federally funded construction projects are paid prevailing wages. Find out how this affects your development.
Defeasance or Yield Maintenance: Which Is Better?
While there’s no easy answer, read our comparative guide to prepayment options to see which may be the most suitable for your situation.
Top 5 Advantages of HUD Construction Financing
HUD loans typically have some of the best terms for multifamily properties — and they’re not just for affordable housing. Find out how a HUD 221(d)(4) loan could work for you.
Janover Closes Central Colorado Industrial Construction Loan
A credit union provided the $2.7 million financing package, which features a 24-month interest-only construction period followed by 10 years of permanent financing at a fixed rate.
SBA 504 Loans and Commercial Real Estate: What You Need to Know
The SBA 504 Loan Program is meant to be utilized by small growing businesses to facilitate growth and job creation. This is done by helping small businesses collect the funds necessary to buy the real estate or machinery they need.
What Is a Tenant Improvement Allowance?
A TI allowance is an incentive offered by many commercial real estate owners to cover the costs of customizing space for a tenant's needs.
What Is Cross Collateralization in Commercial Real Estate?
A cross-collateralized loan has benefits and potential drawbacks when it comes to financing your commercial real estate investments. Read our guide to find out everything you need to know.
Stacking Plans in Commercial Real Estate
A stacking plan is a visual representation of a commercial structure that shows the tenants on each floor, the square footage of each floor, when each tenant’s lease will expire, and sometimes other information. They are most commonly used for office buildings, but can sometimes be used for apartment or retail properties.
Property Management vs. Asset Management in Commercial Real Estate
When it comes to commercial real estate investing, property managers and asset managers may have similar titles, but they have distinctly different roles. A property manager generally focuses on a property’s everyday operations, like maintenance, rent collection, and managing staff. Property managers often work onsite, but not always. In contrast, asset managers are more involved in the financial management of an investment property, including managing tax and legal issues, negotiating with lenders, and managing both the acquisition and disposition of a property in order to maximize long-term profitability.
Real Estate Debt Funds in Commercial Real Estate
For commercial real estate borrowers, debt funds often offer loans that banks can’t-- or won’t offer, including commercial construction loans, bridge loans/lease-up financing, and certain property rehabilitation and redevelopment loans. According to the Mortgage Bankers Association (MBA), debt funds originated nearly $70 in billion commercial real estate loans in 2018, around 10% of all CRE loans originated in that year.
Recapture Clause in Commercial Real Estate
In commercial leasing, a recapture clause permits a landlord to terminate a lease early, and may also allow them to demand all or part of the remaining lease payments immediately. Recapture clauses can be triggered by a variety of events, but are are most often activated when a tenant closes their business and attempts to sublease the property.
Submarkets in Commercial Real Estate
In commercial real estate, a submarket is a smaller part of a larger market. While a market may be a city or MSA, such as New York City, or the Dallas-Fort Worth-Arlington MSA, a submarket is likely to be a neighborhood or Suburb, such as Williamsburg, Brooklyn or downtown Dallas.
UBP: Unpaid Principal Balance in Commercial Real Estate
In commercial real estate finance, unpaid principal balance, or UPB, is the amount of a loan’s principal balance that has not yet been paid back to a lender. To calculate the UPB, a borrower cannot simply subtract their current mortgage payments from the initial loan amount; since they have also been paying interest, they will have to add this into their calculations.
Usable Square Feet vs. Rentable Square Feet in Commercial Real Estate
In commercial real estate, there are two major ways to evaluate a property’s size; usable square feet (USF) and rentable square feet (RSF). In general, this applies most to office and retail properties with multiple tenants, and is not usually applicable to multifamily and industrial properties.
Physical vs. Economic Vacancy in Commercial Real Estate
In real estate, the vacancy rate is the amount of units that are unoccupied over a specific time period. It is usually referred to as a percentage. However, there are actually two distinct types of vacancy: physical vacancy, which refers to the amount of time a unit or units sits vacant, and economic vacancy, which refers to the amount of rent a property owner has lost due to the vacancy of their property.
TI/LC: Tenant Improvements / Leasing Commission In Commercial Real Estate
A tenant improvement, or TI, refers to the improvements a commercial property owner makes to the interior of a rental space in order to suit the needs of a new tenant. A leasing commission, or LC, is an amount paid by the owner of the property based on a percentage of the lease value.
Special Purpose Entities in Commercial Real Estate
A special purpose entity or single purpose entity (SPE) is a legal entity used to acquire and finance a specific investment while limiting risk for all parties involved.
Rent Ceiling in Commercial Real Estate
A rent ceiling is the highest price that a landlord can charge for rent. In most cases, rent ceilings apply to multifamily properties and are a result of city and/or state rent control regulations. A rent ceiling is only effective if it actually sets rents below the current market rate. While rent ceilings are supposed to make properties more affordable for residents in a specific area, in practice, this isn’t always the result, especially due to increased “black market” costs in the form of key fees and additional rent paid in cash.
Tenancy in Common (TIC) in Commercial Real Estate
Tenancy in common (TIC) is a type of commercial real estate ownership structure in which more than one party owns a specific property. Tenancy in common can make it easier for commercial real estate borrowers to get financing for a property, but can cause a variety of legal and practical complications if property owners are not careful.
Value-Add Commercial Properties
Value-add refers to the purchase of a building for the purpose of adding value. Value-add may come from lowering operational expenses and increasing revenue.
What Is Defeasance?
Defeasance is a strategy that permits repayment of a commercial property loan on a property, to facilitate sale or refinance.
Balloon Payments in Commercial Real Estate
Balloon mortgages are two-step financial products that see a borrower make installment-like payments for a certain number of periods before a much larger final payment becomes due to pay off the remainder of the loan. This last payment is called a balloon payment because of its large size compared to the smaller incremental payments.
Understanding Replacement Reserves
Replacement reserves is a budget line item used by commercial property underwriters to address periodic maintenance on systems that wear out faster than the building itself.
Soft Step Down In Commercial Property Loans
A step down requires the payment of a set percentage of the outstanding amount of the loan. That percentage declines as the loan ages. While a typical step down might decline by 1% a year, for example 5 % in year one, 4 % in year two and 3 % in year three, a soft step down starts at a lower rate and declines less quickly. While a step down might have terms that equate to 5-4-3-2-1, a soft step down might be 3-2-2-1-1.
RUBS Income in Commercial Real Estate
In many older multifamily properties, units are not individually metered for utilities, so owners/landlords use RUBS (Ratio Utility Billing System), a method of determining a resident's utility bill based on factors like unit square footage, the number of people living in a unit, or some combination thereof. RUBS can be an excellent way for landlords to reduce costs without directly increasing rent prices.
Residual Land Value in Commercial Real Estate
Residual land value is a metric that equals the value of the land, after all costs of developing have been subtracted.
Pari Passu in Commercial Real Estate
In commercial real estate, pari passu simply means that two investors, creditors, or assets are on equal footing— that is, without preference to one or the other — particularly in regards to syndication payouts.
SOFR: Secured Overnight Financing Rate in Commercial Real Estate
Most commercial real estate loan interest rates are currently set by using the LIBOR (London Interbank Offered Rate) as a benchmark. LIBOR is calculated by measuring the interest rates at which banks lend to each other (specifically short-term, unsecured lending). However, due to a variety of reasons, banks are set to stop reporting LIBOR rates by the end of 2021, and SOFR (Secured Overnight Financing Rate) is the reference rate that will replace it.
Rent Escalation Clauses in Commercial Real Estate
In most commercial leases, rents are set to increase over time. How often, and by how much they increase is specified in a lease contract’s rent escalation clause. Rent escalation clauses are essential for commercial landlords, since, if rents did not increase, landlords would not be able to keep pace with inflation. In practice, this means they likely be unable to continue renting their properties due increase maintenance and operating costs.
Tenant Reimbursements in Commercial Real Estate
Tenant reimbursements, also known as tenant recoveries, are expenses which are paid back to a landlord by a tenant. Common examples of tenant reimbursements include property taxes, property insurance, maintenance and repair costs, and other operational expenses.
Securitization in Commercial Real Estate
Securitization is the process in which commercial or residential real estate loans are pooled together, packaged into a financial product, and sold to investors on the secondary market. Not all types of commercial real estate loans are securitized, but many are.
Subletting in Commercial Real Estate
A sublease, or sublet, occurs when a tenant assigns part or all of their lease to a new tenant. In general, most commercial leases permit subletting, but not all do. Many commercial landlords will charge a fee for subletting in order to compensate for the additional risks and hassles that may occur due to dealing with an additional tenant.
Return on Investment in Commercial Real Estate
In commercial real estate, return on investment (also known as ROI), is a measurement of how much money an investor receives from an investment after all expenses have been deducted. The formula for ROI is ROI = (Investment Gain - Investment Cost)/Cost of Investment.
Waterfall and Promote Structures in Commercial Real Estate
A waterfall and promote structure, also known as a waterfall model, is a method for distributing the profits from a real estate investment in an uneven way. Typically, the project's sponsor (the individual or group putting most of the work in to identify, acquire, and manage the property) will receive a disproportionate share of the profits, known as a promote, as long as the project hits certain profitability benchmarks.
Price Per Key in Commercial Real Estate
In hotel construction and acquisition, price per key is a metric that compares the amount of money spent on building or acquiring the hotel with the number of rooms, or keys, in the hotel.
Restrictive Covenants in Commercial Real Estate
Restrictive covenants are restrictions placed on the use of a property. In commercial real estate, restrictive covenants may be placed on a property by a lender, restricting the activity of the owner while a loan is being repaid, or, by an owner, restricting the activity of tenants. In addition, restrictive covenants can also be written into a property's deed, either for a certain number of years or indefinitely.
Power Centers in Commercial Real Estate
A power center is an outdoor shopping center with multiple big-box retailers, as well as an array of smaller retailers, restaurants, and other kinds of businesses. Power centers are typically located in suburban areas due to cost and space restrictions, but can sometimes be located in urban areas as well. Many power centers are set up as large strip centers, but also may contain several out-parcels, pieces of land intended for individual tenants, such as banks or fast-food chains.
Prepayment Penalties in Commercial Real Estate
In commercial real estate loans, a prepayment penalty is a fee charged to borrower if they attempt to repay their loan early. When a lender issues a loan, they typically want to lock in their profit for a certain amount of time, so the prepayment penalty is a way to compensate them for their financial loss if the loan is paid off early.
Occupancy Rate in Commercial Real Estate
Occupancy rate is an important metric for temporary housing, and can be measured by dividing the number of occupied units by the number of available units.
Sale Leaseback in Commercial Real Estate
In commercial real estate, a sale leaseback is a transaction in which one party sells a piece of real estate, and then leases that real estate back from the new owner, usually under a pre-arranged contract. Sale leasebacks can be especially helpful for business owners who are holding onto expensive retail or office property, but have cash flow problems or need equity to expand their business.
PSF: Per Square Foot in Commercial Real Estate
PSF, or per square foot, is the way that many commercial real estate rental and sale transactions are calculated. Most commercial leases are set at a specific PSF rate.
Percentage Leases in Commercial Real Estate
In commercial real estate, a percentage lease is a form of lease that requires a tenant to pay a percentage of their revenues in addition to a base rent, which will usually be calculated per square foot (PSF). Percentage lease arrangements are often open to significant negotiations before signing, since tenants and landlords may have different financial needs.
NPV: Net Present Value in Commercial Real Estate
Net present value, or NPV, is a financial metric that can help commercial real estate investors determine whether they're getting a certain return-- a 'target yield,' given the amount of their initial investment. Using the NPV equation, you can take a building's current net cash flows and your required rate of return, and determine what a building's value is to you, the investor, right now.
S&U: Sources and Uses in Commercial Real Estate
A S&U, or sources and uses statement, is a document that shows where the funding for a commercial real estate project is coming from-- and how that capital is used. For S&U statements, the combined sources of funds needs to exactly match the combined uses of funds.
TTM: Trailing Twelve Months in Commercial Real Estate
TTM, or trailing twelve months, is measurement of a project's financial data for the last 12 months. TTM figures do not always represent the last fiscal year, though they might-- it is simply a snapshot of the last 12 months of financial activity. Taking a look at an existing commercial real estate project's TTM, as well as its rent roll, can be some of the best ways to determine the property's potential profitability.
T3: Trailing Three Months in Commercial Real Estate
T3, or trailing three months, is measurement of a commercial real estate project's finances for the last 3 months. T3 can be a great tool for investors, since it can help look at a project's most recent profitability, especially if rents or occupancy numbers have recently changed.
RR: Rent Rolls in Commercial Real Estate
A rent roll is a list of a property’s current tenants and how much they pay in rent. In practice, a rent roll is perhaps the best way to determine the true income of an existing commercial property.
R&M: Repairs and Maintenance in Commercial Real Estate
R&M, or repairs and maintenance, refers to work done on a commercial property that is designed simply to maintain the property’s current condition. This includes work done to prevent the further deterioration of building component or system or to replace a building component at the end of its useful life.
Step-Down Prepayment Penalties on Commercial Property Loans
It is called a step-down penalty because the amount gets smaller the longer the loan is in place. For example, a typical step-down might be 5% of the outstanding balance in the first year, 4% in the second year, 3% in the third year, and so on.
U.S. Treasury Yields and Commercial Mortgage Rates
Commercial mortgage rates are influenced by the U.S. Treasury yields, where lower treasury yields lead to lower mortgage rates. This results in larger homes at a more affordable price and ultimately, in economic growth. However, a rise in the U.S. Treasury yields means the mortgage rates will also increase in order to compensate for the high risk.
Recourse Debt Versus Non-Recourse Debt in Commercial Real Estate
Recourse debt, also referred to as a recourse loan refers to a debt where the lender is able to claim the borrower’s assets if he or she fails to pay back the debt to its full amount. Unlike recourse debt, with non-recourse loans the lender is only allowed to collect the collateral but has no right to go after the borrower’s other personal assets.
Preferred Equity Investments in Commercial Real Estate
In a preferred equity investment, the investor is considered an equity partner and therefore benefits from a fixed rate of return.
Fixed Interest Rates and Variable Interest Rates in Commercial Real Estate
Every loan agreement comes standard with a form of interest that must be paid. Interest rates can be negotiable but usually appear in one of two forms: Variable or Fixed. A Variable Interest Rate loan has an interest rate on the outstanding balance that rises or falls based on the current status of the market interest rate. On the other hand, a Fixed Interest Rate loan has an interest rate that remains constant for the duration of the agreed loan term.
HUD in Relation to Commercial Real Estate?
HUD is the term used to describe The United States Housing and Urban DevelopmentDepartment, which is the federal department tasked with creating decent housing for citizens. The government agency was founded in 1965 to support community development and home ownership.
AMI: Area Median Income in Commercial Real Estate
AMI stands for Area Median Income and is a statistic published by HUD. It is the household income of the median (middle) household in an area. HUD releases the AMI for areas across the USA every year. AMI is used as a measure to determine who qualifies for its federal housing programs.
Defining Yield Maintenance In Commercial Mortgages
Yield maintenance is a prepayment penalty on an existing commercial mortgage. It acts as a guarantee for the commercial property lender who made the original commercial mortgage, anticipating a set return over the full term of the loan. Unlike other prepayment penalties, yield maintenance covers the entire cost of the original lending agreement, compensating the lender fully for the prepayment of the borrowed funds.