Would a lender have a problem with me obtaining an unsecured loan to essentially cover the down payment? Would that factor in or create issues for DSCR or CLTV?

In the specific situation I am looking at, the first mortgage would be a large ($10M+) conduit loan, 75% LTV, 30 yr amort, 10 yr term, 1.6X DSCR. (office building with investment grade tenant)

I am able to obtain an unsecured loan, not a 2nd, not a lien, for the 25% "down" and it is paid for with the "0.6X" part of the DSCR. Would the first lien holder care since the 2nd is unsecured?

Does the DSCR calculation take into account ALL loans, or just secured ones? (incl 2nds)

Similarly, does combined LTV (CLTV) take into account all loans or just secured ones?

Thanks for help clarifying these concepts, from a lender's perspective. The answer to the question "then why do it if all income goes to debt?" is that there is a decently long term lease (12+ yrs) with 3% annual bumps, so the profit would begin to roll in starting the 2nd year, increasing as the years go by.

-JP-

Any loans where proceeds are used toward the purchase of a property would be considered in the DSCR. You will need to check with the lender to see whether you can use an usecured loan as the entire downpayment. Most lenders want you to have some skin in the deal even if it is only 5%. Especially true because most of these loans are done non-recourse.

With an investment grade tenant and a NNN lease you should be able to do much better than 75%. Some of these CTL deals have gone as high as 97%. DSCR can be as little as 1.03. The downside is that the term of the loan can be no longer than the remaining years on the lease.

CLTV takes into account all loans on the property. Unsecured debt is not part of CLTV but is part of DSCR.

You may also want to look at a mezzanine loan if the unsecured loan cannot be used. Mezz loans can be expensive, but will often fill most of the gap in equity needed.

You can get an unsecured loan i/a/o $2,500M?

I am curious...

- Rate of unsecured portion?

- Is the unsecured lender placing restrictions on further encumbrances on the property?

Thanks for the responses,

OK, so from what was said, the unsecured debt is not considered in the CLTV, but is in the DSCR.

Regarding the statement about a mezzanine loan, why would that be any different than an unsecured loan? Isnt that just a loan to bridge the gap between the lien mortgage and the purchase price? (i dont know anything at all about it, but i have heard the term) Will the terms / payments of the mezzanine debt be part of the DSCR calculation? Or is there something fundamental about it that I dont understand?

When I say "unsecured" i mean not a lien on the property. It would be secured by the income stream. (based on the first year) The rate would be a spread over the corporate debt of the tenant, since the risk of default would be roughly equal to the risk of default on their senior unsecured debt.

Those CTL loans are really only going to work if the lease is at least 15 years, and with todays cap rates, probably more like 20-25. If the lease is 12-15, then i was thinking about this strategy, conduit 30 yr 1st mortgage (10 yr term), then a second loan not secured by the property, but by the income stream for the life of the lease. Since its a rated tenant, it should be able to be priced relative to the rating of the tenant (much like a CTL loan would be).

With the right property, one might be able to it. I was just curious what would be going through the mind of the conduit lender, what issues or problems they would have with it. When I go to ask, I want to have answers to their questions. This board is the perfect place to get those answers, ya?

One problem i already thought of was: isnt it normal for the 1st lien holder to have a rent assignment type clause that directs the rent to the lender in case of default? Kind of hard to make everyone happy if the rent stream above and beyond the 1st lien payments is spoken for by the unsecured note.

Sorry for so much info, maybe I am thinking foolishly, but the advice and wisdom on this board is incredible.

-JP-

A mezz loan is the equivalent of a second mortgage. It is liened against the property and as such provides an alternative to the unsecured loan you were talking about. Just another option for you to consider.

The first lien holder will make you execute an assignment of rents. That assignment of rents is recorded with the mortgage and gives them first crack at the rents in the event of default. Your unsecured lender would be forced to take what is left over. Their position on the cash flows would be second. In this case, because you have a credit tenant, that may not be such a big deal to either party as long as the scheduled rents can pay both lenders. You do however want to make sure that both parties are comfortable with this arrangement. Not all lenders are comfortable with subordinate debt, whether in the frm of a lien or not. One way to put both parties at ease is to have all lease payments sent to a lockbox with the repsective loan payments disbursed automatically. That way the lenders are assured of payment, in so far as the tenant pays.

All debt, secured, unsecured, participatory or otherwise will be considered in the DSCR. There is no legal way around this. Even on a non-recourse loan, you will be considered in default and be personally liable if all debt is not fully disclosed. It only stands to reason that all lenders will want to ensure that the rents are sufficient to cover the new debt.

This would have very little chance of getting done with a bank lender. While it is true that the 25% being funded will allow us to meet our regulatory guidelines under FIDCIA. There are a couple of big weaknesses.

1- You have none of your own money in there. The risk is primarily the lenders, and the rewards still belong to the entrepeneur. Most loans {other than mezzanine hybrids} do not participate in the upside.

2- All debt service must be accounted for. I might even want to know how exposed you are on any other projects.

3- Assignment of rents and leases is standard on first mortgages. I was surprised to see that you stated ” I am able to obtain an unsecured loan, not a 2nd, not a lien, for the 25% " I guess I should have read that as “I think am able to obtain…” I find the possibility of someone without significant financial strength being able to obtain a “truly unsecured” loan of that size very small. I know I could not.

4- Ialmost forgot the lack of cushion on the DSCR, that is another thing that needs to get sold to the people with the lending authorities of that level.

BIG THANK YOU to you both!

Yes, I definitely meant to say "IF I am able to obtain..." hehe

All of my other properties were standard down payments, (making full use of the info on this site) I was just thinking about bigger fish, and I thought perhaps things are done differently at that large loan level, or at least there was more room to maneuver or get creative.

Back to the drawing board (and calculator)

-JP-