Low Cap Rates and Maximum CRE Loan Amounts - LTV Doesn't Matter Anymore

"Rate and proceeds"...the commercial real estate industry standard for summarizing a loan in two words. In reality, CRE borrowers use "proceeds" as shorthand for loan-to-value (LTV) * Property Value. For decades, LTV has been the go-to term for comparing alternative loan proceeds.

That just doesn't work anymore.


The Reality of Commercial Real Estate Loan Sizing

Commercial real estate lenders CAP the loan amount at the lower of:

LTV Guideline
Debt-Service-Coverage Ratio (DSCR) Guideline
The current low cap rate environment creates a double whammy working against CRE sponsors. Lower cap rates drive up prices. This means more loan dollars for a given LTV. Larger loan amounts require more net operating income (NOI) dollars to cover debt service payments. It's a vicious cycle...

The vast majority of loans BrightLight arranges are constrained by DSCR and not by LTV. For those of us that can't do differential equations in our head, estimating loan proceeds based on DSCR is laborious and time consuming. And then you must compare the "DSCR Loan Amount" to the "LTV Loan Amount."


A Simple Solution


BrightLight developed a great tool to solve this problem faced by our customers. The CRE Loan Payment Calculator provides both the annual loan payment AND the minimum required NOI to support the loan amount. We provide annual loan payments and minimum required NOI for 30 year, 25 year and 20 year amortization terms at the click of a button.



It's what we do.