Chapter 6 The Financing Environment 4 Fin. Sys. For Comm. Prop. Finance Financial Intermediation is the Goal Default Risk - likelihood that borrow can not meet mtg. obligations Role of Financial Innovations Mortgage Backed Securities (RTC, CMBS) Typical Capital Structure Loan to Value Ratios (75% avg. today)

Chapter 6 The Financing Environment 4 Fin. Sys. For Comm. Prop. Finance How has mortgage term varied over the years Under increasing inflation (Borrowers - long/ Lenders - short) The Relationship between Mortgage Finance and the Macroeconomy Capital Structure Vacancy Rates Delinquency Rates

Chapter 6 The Financing Environment 4 The Mortgage Lending Process Application Stage Contents of the Application Package Descriptions of Property and financing Financial Statements of Borrower Pro-Forma Statements Appraisal & Phase 1 Analysis Underwriting/Analysis Stage Analysis of the property (Review) Analysis of the Borrower (Subjective)

Chapter 6 The Financing Environment 4 The Mortgage Lending Process Commitment Stage Common Sections Loan Commitment (letter) Negative Covenants (Priority) Financial Covenants (Performance) Closing Stage Pre-closing (documents prepared) Closing (meet to sign) Post Closing (tracking and recording)

Chapter 6 The Financing Environment 4 New Developments in Financing Envir. Commercial Mortgage Backed Securities Securitization of Equity Capital (REITs) Environmental Regulation (Liability & Superfund)