Commercial Real Estate Cash Flow: Part 1
Commercial Real Estate Cash Flow: More than EBITDA and DSC
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 in evaluating commercial real estate cash flow.
This program introduces (from a case study) the key variables and concepts for determining real estate 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 it to help update underlying collateral value. Topics include:
- 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
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.
Richard Hamm has been training bankers for more than 23 years, specializing in all phases of commercial lending and credit, including portfolio and risk management, commercial real estate and appraisals, plus selling and negotiating skills. He has also been involved in director training, loan policy formation, bank formation and strategic planning. He owns/operates Advantage Consulting &Training after a 22-year banking career including senior positions in lending and credit.
Institute of Certified Bankers: Visit http://www.icbmembers.org/login.aspx for instructions regarding self-reporting. Estimated credits: 2 hours/session
Member price: $275.00 | Non member price $530.00
Member price: $295.00 | Non member price $560.00
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