Learn about yield maintenance and how it is utilized as a prepayment penalty in commercial real estate finance.
Here’s how to conduct a self-storage feasibility study before investing in a facility.
Operating expenditures (OpEx) are any ongoing costs incurred in the everyday operation and maintenance of the commercial property.
Ingress and Egress Rights
Ingress and egress rights are the defined legal right to enter and exit a property.
A holding company protects an investor’s assets by placing everything related to the ownership of a commercial real estate asset under its name instead of the investor’s.
Self-Storage Lease Agreements
Self-storage rental contracts should include a few key elements. Here’s a list of what these are.
Loan to Cost
The loan-to-cost ratio, or LTC, represents the amount of debt in relation to a project’s total cost.
Key Metrics in Self-Storage
Return On Investment
Return on investment (ROI) is a financial metric that measures the approximate profitability of an investment.
Internal Rate of Return
Prepayment penalties are fees that lenders typically collect from borrowers who pay loans off early.
Loan to Value
An LTV represents the amount of debt in relation to the value of the collateral tied to a deal.
Step-Down Prepayment Penalty
Step-down, or graduated, prepayment is a straightforward declining payment schedule that is calculated based on the remaining balance at prepayment in conjunction with the amount of time that has passed since the closing of the loan — or the most recent rate reset.
Net Operating Income
NOI, short for Net Operating Income, is a metric that represents the profitability of a commercial property.
Net Present Value
Calculating NPV helps determine the value of all future cash flows for the life of an investment discounted to the present day.
When buying a property encumbered by a loan, you may be able to assume the existing financing instead of taking a new mortgage for the acquisition.
When multiple companies or individuals are involved in owning a property, they are structured as joint ventures, often referred to as JVs, where each party has a specific role.
Gross Potential Rent
Gross potential rent, or GPR, is a metric that reflects the amount of rental income a commercial property generates at 100% occupancy.
In commercial real estate, defeasance is the replacement of the collateral of a loan with securities whose value provides the lender with an equivalent return.
metric in commercial property finance that measures the profitability of an investment.
Generations of Self-Storage Facilities
The self-storage sector has three unique generations of facilities based on a property’s age, and knowing an asset’s generation is useful in an investment decision.
Gross Leasable Area
Gross leasable area (GLA) is the space in a commercial property that is designed for the exclusive use of a tenant.
An easement is a legal agreement with the owner of real estate that permits access under specified circumstances.
Balloon Payments & Balloon Loans
Debt Service Coverage Ratio
Debt Service Coverage Ratio, or DSCR, is a measurement of an entity’s cash flow vs. its debt obligations.
The equity multiple is a simple financial metric used to compare the income an investment has generated compared to the amount of capital input into it during a specific period of time, usually the length of time an investor plans to own an asset.
Absorption is a metric that describes the amount of space that has been leased in a market or submarket over a specified period
Effective Gross Income
Effective gross income, or EGI, is a forecast of an asset’s income. It isn’t strictly limited to rental payments — any revenue generated from a property should be considered.
A cap rate is a commercial financing measure representative of the expected net gain or loss of profit on an investment over a specified time period, usually one year.
Diversification involves holding a mixed variety of investments within a single portfolio.
A cash-on-cash return calculation, also known as a cash yield, is a relatively easy way for an investor to determine how profitable an investment could potentially be.
Capital expenditures are large investments made to acquire, rehabilitate, or maintain a property to extend its economic life.