Loan Maturities Loom for Multifamily Financing
[{"id": "cojdg16", "text": "&gt;a new constraint arose during the financial debacle of 2008\u20132012: the debt yield (DY), which is calculated by dividing the net cash flow of a property by the total amount of loan proceeds.  \n\nand then  \n\n&gt;Debt-yield constraints are designed to divorce the lender\u2019s underwriting from interest and capitalization rates and offer an additional layer of protection from future expected rate rises.  \n\nAnyone have a real-world example to show how a property can have adequate DSC but get pinched on proceeds because of debt yield? I understand what they mean, but I would like to see it in practice.", "replies": [{"id": "cojr5bo", "text": "A real world example would be during initial lease-up of an under construction building.  For example, you're building a real estate asset and your construction loan has an assumption of value based on appraisal amounts which includes a proposed rent schedule.  \n\nWhat happened in previous downturns, developers wouldn't 'sign' any leases until construction was completed because once you sign a lease an actual value (as opposed to appraised value) can be determined, i.e. $/sf/month = NOI.  If you are on the upswing, great, get a tenant to sign the lease (even if pre-lease) and begin to hunt for perm financing, no problem.  If, on the other hand, lease amounts were less than you were expecting by signing the lease you've just determined an actual amount and, subject to the covenants in your loan, could trigger default.\n\nFor actual existing buildings, when AZ passed bill 1062 on immigration large numbers of apartments went dark because tenants bolted.  LTV's and interest rates were unaffected since those values were determined in the past, but under this new debt yield calculation and corresponding changes in debt covenants, if you see a dip in rents, for whatever reason, can trigger a default.\n\nBasically another tool lenders can use and incorporate into their debt terms, to quickly take back a non-performing asset.", "replies": [], "depth": 2}], "depth": 1}]