The Commercial Real Estate Lending Decision Process provides a comprehensive study of commercial real estate (CRE) lending, beginning with a description of CRE loan types and progressing to an understanding of the underwriting process, leases, appraisals, loan structures and related risks. The Series also includes resources to help the student apply the concepts learned in each course. These resources include job aids, reproducible work sheets for cash flow, compliance and important financial ratio calculations. The six parts of The Commercial Real Estate Lending Decision Process will provide students with a foundation in CRE through the use of an innovative virtual bank. Each section is presented in an interactive format to include exercises to check for knowledge throughout the courses. Each course within the complete program includes case studies that are used to insure depth and understanding of the concepts presented throughout the program series.
Series 1: Types of CRE Loans, Risk Areas and Performance Drivers
The purpose of this series is to help the student learn about the different types of CRE loans and to be able to provide the right loan for both the borrower and the bank. The Series also will identify the risk areas in CRE lending and help analyze the drivers of CRE performance.
After completing this course, students will be able to:
• Evaluate the differences between commercial and industrial (C&I) and CRE loan categories
• Identify how C&I, CRE, and owner-occupied loans fit into the credit decision framework
• Define and describe the characteristics and purposes of the four primary types of CRE loans
• Identify the loan’s purpose and related use of funds, type of property and collateral, and ultimate repayment source
• Explain repayment source co-dependence
• Identify the risk area of CRE lending
• Analyze the drivers of CRE performance
• Identify the drivers of CRE loan performance and apply the CRE Drivers of Loan Performance checklist to an actual loan
• Identify the three primary areas of loan performance risk (operational, market, and credit risk)
• Identify which of the three primary areas of risk the bank can influence and steps lenders can take to influence those risks
Series 2: The CRE Underwriting Process
The purpose of this series is to help the student identify a company’s net operating income (NOI) or cash flow and to analyze the project and proposed loan. Capitalization rates and valuation basics are also introduced as well as the appraisal process and identifying best practices regarding environmental assessments.
After completing this course, students will be able to:
• Identify the components of CRE quantitative analysis, including gross lease income, vacancy, operating expenses, and net operating income (NOI)
• Identify underwriting guidelines for your own bank
• Construct a basic income property cash flow using the components of CRE analysis
• Evaluate loan repayment sources using the DSC ratio, capitalization rates and valuation, and the LTV ratio
• Conduct a stress test of DSC for potentially lower cash flow and higher interest rates and of LTV for potentially higher CAP rates.
• Explore changes in property variables on an individual basis using sensitivity analysis
• Explain the role and function of capitalization rates
• Compare and contrast the direct capitalization valuation approach with the discounted cash flow approach
• Identify the key steps in ordering and reviewing appraisals
• Explain the rules and regulations regarding appraisals that lenders must follow
• Define and describe the types of CRE appraisals and their components
• Identify the key steps and issues involved in ordering and reviewing environmental assessments
• Describe the rules and guidelines for Phase I environmental reports
• Identify and describe the types of environmental risk management tools
Series 3: Financing Different Types of Commercial PropertiesPage Content
The purpose of this series is to help the student identify and define important credit risk considerations for major property groups and special properties. In addition students will identify and compare components used in reporting statements for various income properties, estimate rental income using various approaches and create pro forma operating statements.
After completing this course, students will be able to:
• Identify the key characteristics of and differences between the major types of commercial properties
• Identify the key terminology and underwriting considerations for each property type
• Identify the key characteristics of and differences among specialized properties
• Identify the key terminology, underwriting considerations, and documentation for each property type
• Identify and compare income and expense components for different types of commercial property
• Identify and compare operating statement formats that use varying methods of calculating and reporting on real estate projected income
• Calculate: NOI from Schedule E tax returns, monthly rent payment from percentage rents and CAMs, and effective rents from differing scenarios
• Calculate income property pro forma cash flow on as-is and as-stabilized basis from qualitative and quantitative information sources
Series 4: Understanding and Evaluating Leases, Appraisals and Environmental Assessments
The purpose of this series is to help the student recognize and use lease terminology and recognize the cash flow and economic considerations of leases. Students will be shown how to review commercial property leases, assess the role and scope of an appraisal and identify issues in reviewing appraisals. The final section of this Series 4 will assess the role and scope of an environmental assessment and identify issues when reviewing environmental assessments.
After completing this course, students will be able to:
• Identify economic, legal, and business issues in commercial property leases including key documents, lease terms, and objectives or purposes.
• Describe the role of an appraisal in the loan underwriting process, its uses, and its limitations
• Identify the key considerations in defining the appraisal problem and determining the scope of work
• Determine how valuation concepts are developed and executed in a sample appraisal
• Identify key areas of an appraisal to evaluate in the review process and common errors to watch for
• Describe the role of an environmental assessment in the loan underwriting process, its uses, and its limitations.
• Describe potential environmental risks and ways to mitigate those risks.
• Identify key considerations in defining the required level of due diligence.
• Evaluate and interpret the findings of a Phase I environmental report.
Series 5: Loan Structure and Documentation Considerations
The purpose of this series is to help the student assess various borrowing structures, identify issues involving owner occupied lending, determine loan documentation and due diligence considerations and to identify key components of CRE Loan structure.
After completing this course, students will be able to:
• Identify the strategic advantages and disadvantages of various forms of business ownership
• Identify the primary tax returns used for each borrowing entity and the sections that provide valuable financial information for loan underwriting
• Identify the ways cash moves among business entities
• Identify the decision-making process for an owner-occupant when either purchasing or leasing a building
• Identify repayment sources, their hierarchy, and their co-dependence for owner-occupied loans
• Determine how to structure owner-occupant loans to address unique attributes such as holding company structure, property condition, and valuation issues
• Identify key elements in the SBA 504 program to finance owner-occupied real estate
• Identify the key instruments necessary to document a loan transaction and perfect a lien on collateral
• Identify organizational documents required for various entity forms and execution requirements
• Recognize key elements of due diligence to be submitted and reviewed prior to closing
• Evaluate and interpret the findings of a title policy
• Identify key components of CRE loan structure
• Demonstrate the use of loan covenants and other techniques to protect property cash flow and property value
• Identify how permanent market pricing and loan structure differs from and influences the traditional bank market
Series 6: Construction Lending
The purpose of this series is to help the student identify the key types of construction projects and loans. In addition the series explains construction lending underwriting and administration issues and how to recognize the different elements of the construction lending process. Finally the student will identify key elements for successful completion of construction projects and also the special issues involved with home builders and subdivision developers.
After completing this course, students will be able to:
• Identify the six general types of construction loans
• Identify the additional risks, considerations, and review needed with construction loans
• Explain the steps in determining the proper administration of a construction loan based on approval conditions, the commitment letter, and loan policies and procedures
• Identify key concerns in reviewing construction contracts, budgets, and site information
• Calculate the adequacy of a construction loan interest reserve requirement
• Identify best practices in construction and loan documentation and administration
• Identify components of construction loan agreements, surety bonds, permits and zoning, and insurance including steps in processing draw requests and analyzing inspection reports
• Identify key elements for successful completion of the project
• Identify acceptance by the customer, punch list items, payment of retainage to the contractor, and the certificate of occupancy
• Recognize various segments in the single-family home markets and their characteristics
• Identify the key issues for administering or monitoring builder construction lines
• Build a timeline of the development process and identify developer attributes needed to achieve each step
• Identify various types of risk inherent in lending to single-family-home developments, risks from both external and internal sources
• Identify the key issues for monitoring home builder and subdivision loans
2020.07
ABA
