Commercial real estate (CRE) is income-producing propertyused solely for business (rather than residential) purposes. Examples include retail malls, shopping centers, office buildings and complexes, and hotels. Financing includes the acquisition, development, and construction of these properties.
Commercial banks, insurance companies, pension funds, private investors, independent lenders and other sources are actively involved in making loans on commercial real estate.
Commercial loan LTVs generally fall into the 65% to 80% range. In certain situations higher, LTV’s can be achieved. For example, 90% - 95% might be acceptable for multifamily construction.
Debt-Service Coverage Ratio
In general, commercial lenders look for DSCRs of at least 1.25 to ensure adequate cash flow.
A lower DSCR may be acceptable for loans with shorter amortization periods and/or properties with stable cash flows. Higher ratios may be required for properties with volatile cash flows – for example, hotels, which lack the long-term, more predictable, tenant leases common to other types of commercial real estate.