Banks continue to deal with commercial real estate (CRE)
loans as a major portion of their loan portfolios. Also, many
borrowers still have large holdings of income-producing or
rental real estate.
Whether directly financing these assets or including the
income stream(s) in your overall credit analysis, it is
important to understand key analytical concepts utilized in
evaluating CRE cash flow.
This program covers the key variables and concepts for
determining CRE cash flow and transaction-level stress-testing.
We'll learn that CRE cash flow involves more than earnings
before interest, taxes, depreciation and amortization (EBITDA)
for a debt service coverage (DSC), and that we should be using
the updated cash flow to help update the underlying collateral
value as part of ongoing loan monitoring. Making the connection
between updated cash flow and an updated value estimate involves
a capitalization (cap) rate.
Covered Topics:
- Cash flow or net operating income (NOI) concepts
- Understanding key variables: vacancy, management
fees and replacement reserves
- The missing link: Using NOI along with a cap rate to
estimate current property value
- Moving from NOI to cash flow available for debt
service (CFADS) and DSC
- Stress-testing of debt service coverage (DSC) and
loan-to-value (LTV) at transaction level
- How to use a sample worksheet to explore the major
issues, including stress-testing, demonstrated with a
case example
Who Should Attend?
Commercial lenders, credit analysts and small
business lenders, consumer lenders, mortgage bankers and
private bankers; loan review specialists, special assets
officers, lending managers and credit officers.
Instructor
Richard Hamm has been training bankers for 25
years, designing and delivering courses specializing in commercial
lending and credit, including portfolio and risk management,
commercial real estate (CRE) and appraisals, plus selling and
negotiating skills, and director training.
Richard is based in Huntsville, AL and has owned/operated Advantage
Consulting & Training for 13 years, after a 22-year banking career
including senior positions in lending and credit, plus president
through formation and acquisition of a community bank. He has BS and
MBA degrees from the University of Alabama.
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