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Skybridge Commercial, a commercial real estate brokerage firm, provides professional commercial real estate services mainly in Northern California. The company was founded to service the rapid growth of commercial real estate demands in the Silicon Valley area. Our territory includes counties of Santa Clara, Alameda, San Francisco, Sacramento, San Joaquin, Stanislaus, Contra Costa, and Fresno.




Commercial Loan Glossary


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Note: The following information is provided without warranty of any kind and for your information only.

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Top A

Adjustable Rate Mortgage: A 2-dimensional measure of land equaling 160 square rods, 10 square chains, 4,840 square yards, or 43,560 square feet.

Adjustment Interval: The period of time between changes in the interest rate for an adjustable-rate mortgage. Typical adjustment intervals are 6 months and 1 year.

Amenities: Noted in the appraisal, the non-monetary benefits derived from property ownership.

Amortization Period: The period, or length of time, over which the principal portion of a mortgage loan is scheduled to be paid down through periodic payments.

Appraisal: An estimate of the value of a property made by a qualified professional called an appraiser. (Impero Commercial Lending typically requires the appraiser to be MAI certified.)

Assumability: A mortgage loan which can be transferred to another person without a change in the terms of the loan. This typically requires a flat-fee to be paid to the lien-holder for transferring.

Top B

Balloon Payment: One large payment of the remaining principal balance of a mortgage, due at a time specified in the contract (i.e. a 5-year balloon would have periodic payments made through 5 years and then a lump-sum payment made on the 60th month.)

Basis Point: 1/100th of 1% usually expressed as a margin over an index rate.

Borrowing Entity Type: The legal form under which property is owned.

Bridge/Short-Term Loan: A short-term or interim loan for borrowers who need more time to find permanent-financing or are repositioning a commercial property.


Top C

Call: (see Balloon Payment) Essentially the lien-holder has a �call provision� noted in the contract in which they can call the note due in full. Typically this is a 5-year or a 10-year call.

Capital Expenditures: Line items on a Profit and Loss statement that would not be expensed on an annual basis. This category would include replacement of major building systems, such as roofs, etc.

Carve Out: The definition used for the inclusion of recourse in loan documents for fraud and misrepresentation.

Cash-Out Refinancing: When the principal amount of a new mortgage involved in refinancing is greater than the principal amount outstanding on the existing mortgage being refinanced, and all or a portion of the equity is converted to cash.

Commercial Mortgage-Backed Security (CMBS): A bond or other financial obligation secured by a pool of mortgage loans.

Cost of Funds Indexl (COFI): Index used to determine interest rate changes for adjustable rate mortgages. It is based on the cost of funds of the 11th District of the Federal Home Loan Bank.

Conduit: The financial intermediary that sponsors the link between the lender(s) originating loans and the ultimate investor. The conduit makes or purchases loans from third-party correspondents under standardized terms, underwriting and documents and then, when sufficient volume has been obtained, pools the loans for sale to investors in the CMBS market.

Constant Maturity Treasury (CMT): An index based on the U.S. Treasury that is used in the pricing of debt for banks.

Construction Type: The type of construction used for a commercial building (i.e. concrete tilt-up, etc.).



Top D Debt Service: The periodic payments (principal and interest) made on a loan.

Debt Service Coverage Ratio (or Debt Coverage Ratio): Measures a mortgaged-property�s ability to cover monthly payments defined as the ratio of net operating income over the periodic payments (principal and interest) made on a loan. A DSCR of less than 1.0 means that there is insufficient cash flow generated by the property to cover required debt payments. Typically a lender requires a DSCR of 1.25 or better depending on the property type.

Defeasance: A clause in a mortgage that gives the borrower the right to prepay a commercial mortgage by purchasing US Treasuries in an escrow account to pay off ongoing debt service.

Discount Rate: The rate of interest that the Federal Reserve charges member banks for loans.


Top E

Environmental Report: Report generated by qualified environmental firms to determine potential environmental hazards in a building's region or within the building itself. These reports are typically called a "Phase I", "Phase II", etc and subsequent reports are only required if the preceding report expresses any concerns as to the suitability of the property.

Environmental Risk: Risk of loss of collateral value and of lender liability due to the presence of hazardous materials, such as asbestos, PCB's, radon or leaking underground storage tanks on a property.

Top F

Federal Funds (Fed Funds): Fed Funds is the interest rate charged by those banks with excess reserves on hand (reserves over and above the minimum required by the Federal Reserve) to those banks in need of overnight loans to meet reserve requirements. Since it is set daily, the Federal Funds rate is the most sensitive indicator of the direction of interest rates.

Fixed-Rate Mortgage: A mortgage with an interest rate that remains constant for the life of the loan.


Top I

Interest: The sum paid for borrowing money, which pays the lender's costs of doing business.

Interest Rate: The sum charged for borrowing money, expressed as a percentage

Interest Rate Cap: Limits the interest rate or the interest rate adjustment to a specified maximum. This protects the borrower from increasing interest rates.


Top L Libor: The rate that the most creditworthy international banks dealing in Eurodollars charge each other for large loans. Rates are quoted in monthly increments out to 1 year.

Loan Processing Fee: The fee charged by a lender to prepare all the documents associated with your mortgage.

Loan-to-Value Ratio (LTV) : The ratio between the principal amount of the mortgage balance, at origination or thereafter, to the current value of the underlying real estate collateral. The ratio is commonly expressed to a potential borrower as the percentage of value a lending institution is willing to finance. The ratio is dynamic and varies by lending institution, property type, geographic location, property size, etc.

Lock-Out Period: A period of time after loan origination during which a borrower cannot prepay the mortgage loan without paying the interest the loan would have incurred during the lock-out period.


Top M Margin: The amount that is added to an index rate to determine the total interest rate.

MAT: Monthly Average Treasury.

Maturity: 1. The termination period of a note (e.g., a 25�year mortgage has a maturity of 25 years). 2. In sales law, the date a note becomes due.

Mezzanine/Second Loan: A loan secured by a mortgage or trust deed in which the lien is junior, or secondary, to another mortgage or trust deed.

Money Market: The market for short-term debt instruments.

Multi-Family Property Class A: Properties are above-average in terms of design, construction and finish; command the highest rental rates; have a superior location, in terms of desirability and/or accessibility; generally are professionally-managed by national or large regional management companies.

Multi-Family Property Class B: Properties frequently do not possess design and finish reflective of current standards and preferences; construction is adequate; command average rental rates; generally are well-maintained by national or regional management companies; unit sizes are usually larger than current standards.

Multi-Family Property Class C: Properties provide functional housing; exhibit some level of deferred maintenance; command below-average rental rates; usually located in less desirable areas; generally managed by smaller, local property-management companies; tenants provide a less-stable income stream to property owners than Class A and B tenants.


Top N Non-Recourse: A mortgage or deed of trust securing a note without recourse allowing the lender to look only to the security (property) for repayment in the event of default, and not personally to the borrower. A loan not allowing for a deficiency judgment. The lender�s only recourse in the event of default is the security (property), and the borrower is not personally liable.

Notice of Default (NOD): To initiate a non-judicial foreclosure proceeding involving a public sale of the real property securing the deed of trust. The trustee under the deed of trust records a Notice of Default and Election to Sell ("NOD") the real property collateral in the public records.


Top O Organization: Securing a completed mortgage application from a commercial (or residential) borrower.


Top P

Phase 1 Report: (see environmental report) An assessment and report prepared by a professional environmental consultant who reviews the property - both land and improvements - to ascertain the presence or potential presence of environmental hazards at the property such as underground water contamination, PCB's, abandoned disposal of paints and other chemicals, asbestos and a wide range of other potentially damaging materials. This Environmental Site Assessment (ESA) provides a review and makes a recommendation as to whether further investigation is warranted (a Phase II Environmental Site Assessment). This latter report would confirm or disavow the presence of an environmental hazard and, should one be found, will recommend additional review and/or mitigation efforts that should be undertaken.

Points (Loan Discount Points): Each point is equal to 1% of the total amount of a mortgage. Typically charged in connection with originating or funding a loan.

Prepayment Penalty: Fees paid by borrowers for the privilege of retiring a loan early.

Prime Rate: The rate at which banks lend to their most creditworthy customers.

Principal: 1. The amount of debt, not including interest, left on a loan. 2. The face amount of the mortgage.


Top R

Rate Index: An index used to adjust the interest rate of an adjustable mortgage loan (e.g., the change in U.S. Treasury securities (T-Bills) with 1-year maturity. The weekly average yield on said securities, adjusted to a constant maturity of 1 year, which is the result of weekly sales, may be obtained weekly from the Federal Reserve Statistical Release H.15 (519). This change in interest rates is the "index" for the change in a specific Adjustable Mortgage Loan.

Recourse: Personal liability.

Rent Roll: A list of tenants leasing a property, which details terms of lease, area leased, and the amount of rent being paid.

Replacement Reserves: An amount set aside from net operating income to pay for the eventual wearing out of short-lived assets. Monthly deposits that a lender may require a borrower to reserve in an account, along with principal and interest payments for future capital improvements of major building systems; (i.e., HVAC, parking lot, carpets, roof, etc.)

Reserve Funds: In CMBS, portion of the bond proceeds that are retained to cover losses on the mortgage pool. A form of credit enhancement (also referred to as "reserve accounts").


Top S Second Mortgage: A mortgage that is second in priority because of the time of recording the mortgage or of the subordination of the mortgage.

Secondary Mortgage Market: The buying and selling of first mortgages or trust deeds by banks, insurance companies, government agencies, and other mortgagees. This enables lenders to keep an adequate supply of money for new loans. The mortgages may be sold at full value ("par") or above, but are usually sold at a discount. Not to be confused with a "second mortgage."

Self-Amortizing Mortgage: One that will retire itself through regular principal and interest payments. Contrast with balloon mortgage or interest-only loan.

Spread: Number of basis points over a base rate index.


Top T

Tax & Insurance Impound: Monthly deposits that a lender may require to be included with principal and interest payments for the payment of taxes and insurance.

Term: The length of time a mortgage rate is fixed or adjustable prior to it coming due. Different from loan amortization.

Third Party Costs: Costs resulting from third-party reports such as appraisal reports, environmental reports or structural engineering reports.

Title Insurance: An insurance policy that insures you against errors in the title search - essentially guaranteeing your, and your lender's, financial interest in the property.


Top U

U.S. Treasury Bill: Treasury Bills, or T-Bills, are short-term securities with maturities of up to one year. They are issued by the U.S. Government at a discount from face value. The price is quoted in yield, not dollars. At maturity, T-Bills are redeemed for full face value. T-bills are issued in three-month, six-month and 1-year maturities and are backed by the full faith and credit of the U.S. Government.

U.S. Treasury Bond: Treasury Bonds are long-term securities with maturities greater than 10 years. Treasury bonds are coupon-bearing securities that pay interest on a semi-annual basis. Treasury bonds are backed by the full faith and credit of the U.S. Government.

U.S. Treasury Note: Treasury Notes are intermediate-term securities issued with 2, 3, 5, and 10-year maturities. Treasury notes are coupon-bearing securities that pay interest on a semi-annual basis. Treasury notes are backed by the full faith and credit of the U.S. Government.

Underwriting: The process of deciding whether to make a loan based on property cash flow, credit, and/or other factors.


Top Y Yield: The rate of return on a security, taking into consideration annual interest payments, purchase price, redemption value, and the time remaining until maturity.

Yield Maintenance: A prepayment premium that allows investors to attain the same yield as if the borrower made all scheduled mortgage payments until maturity. Yield maintenance premiums are designed to make investors indifferent to prepayments and to make refinancing unattractive and uneconomical to borrowers.




SOURCE: CCIM Institute - Commercial Real Estate Glossary