We have gathered some tools and resources that will help you with your investments the most important value you can bring to a transaction is your knowledge and expertise. If you have a good understanding of the investment metrics used to value income property, you will have tremendous credibility in the transaction. Commercial real estate is numbers-intensive and relationship-rich, so if you want to succeed, then learn to do it the right way.
Learn more about the formulas and ratios that lenders and investors use to value property. We have created a brief tutorial for each concept, explaining why it’s important, how to calculate it, and some real world examples:
Overview: When buyers and agents ask you what is the cap rate for a listing, they are referring to the capitalization rate, which is a common ratio used to evaluate the investment return for income-producing properties. Cap rates can vary greatly depending on property type, collateral quality, market area, and availability of financing. A property’s cap rate can also indicate a perceived immediate upside or downside to the investment, depending on whether it is in line with the prevailing cap rates for similar properties in its market area.
Overview: While investors ask about cap rates and gross rent multipliers to determine whether or not a property meets their investment criteria, lenders tend to focus on something called the debt coverage ratio (DCR). You may not be as familiar with this metric, but you can bet that your lender or mortgage broker is intimately familiar with it because the DCR can determine financing options for a property.
Overview: When considering a loan request, lenders use different ratios to determine creditworthiness for a borrower. Even though commercial real estate financing relies heavily on the property’s net operating income to underwrite the loan, borrowers are viewed as a secondary source of repayment for the loan in case anything should interrupt the cash flow from the property. Besides examining a borrower’s credit history, net worth, and liquid assets, a lender will also consider the borrower’s debt-to-income ratio.
Overview: Most old-school investors use a simple rule-of-thumb to estimate a property’s value, and this is known as the gross rent multiplier (GRM). The reason for its popularity is that it’s so easy to calculate. Unfortunately, it does not always offer the most accurate or reliable method of estimating the market value for a property. For example, the GRM does not consider such fundamental investment criteria as cost of capital or even operating expenses. Despite its drawbacks, the GRM is a tool that can provide a “quick and dirty” comparison to similar properties in the area.
Overview: Most investors believe that the maximum loan-to-value ratio (LTV) offered by a lender applies to every single property, regardless of net operating income or debt coverage ratio. This is hardly the case, as properties in Southern California rarely achieve the maximum LTV offered by a lender due to high property values and strict DCR requirements. LTV is closely tied to an important concept, which is leverage, and most investors understand that higher leverage can result in less cash flow; since a greater portion of the property’s net operating income is being used to make the mortgage payments.
Overview: Investors don’t usually decide to buy properties based on “curb appeal” or aesthetics more likely, they buy the income stream from the property. Commercial real estate value is based on numbers and ratios, and the most important number to know is the net operating income for a property. The net operating income (NOI) is the single most important number used to determine value and financing options.
Dear Leonard and Team,
As an experienced investor, I have worked with numerous commercial mortgage brokers, but none have matched up to Mr. Manriquez. Leonard and his team provided me with exceptional services every step of the way. The process was efficient and seamless as their knowledge provided me peace of mind. I have made the decision that going forth, Leonard Manriquez will be my exclusive mortgage broker.
I wholeheartedly recommend ALB Commercial Capital. Truly thankful for your excellent services.
Bertha A Huizar
And to all who would use his services. I endorse them wholeheartledly:
I have used the services of ALB Commercial Capital and ecspecially those of the leader, Leonard Manriquez, at least (4) times in the past several years and have always found them to be topflight, and very professional. I highly recommend them to anyone who wishes to expedite real estate loans with a minimum of hassle.
C. Girot Attorney At Law
I refer all of my commercial clients to Leonard Manriquez the owner of ALB Commercial Capital. Not only does he understand all the ins and outs of commercial lending but he has a way of putting my clients at ease knowing they are in good hands and he keeps me updated all the way to closing. Having a lender like this actually help me in building my repeat and referral business.
I have had the pleasure of knowing and working with Leonard Manriquez from ALB Commercial Capital for over 30 years. Leonard is a consummate professional and can get your commercial transactions closed in a smooth and timely manner. He specializes in 5+ to 100 Units or more, Leonard is your Go To lending professional for transactions Nationwide. I would recommend Leonard in a heartbeat, as I have done many times before.
It is in my sincere humble opinion that I am totally grateful on behalf of my bank to take recognition in the fact that ALB from the level of professionalism , may it be the initial stages of the deal summary, to the deal related information, the collaboration about all aspects of the deal structure, last but not lease the processing team at ALB, it is the most outstanding firm that I have been blessed to work with.I am honored and blessed to be able to have the opportunity to work with your firm, as ALB would be a leading example for other brokerage houses to take notes from.
“We work with some of the most active commercial mortgage brokers in the west coast. ALB Commercial Capital has a platform that consistently delivers exceptional results to their borrowers. The proof is that borrowers come back to ALB time and time again!”
“As a commercial real estate banker for the past 14 years, I have had the opportunity to work on thousands of transactions with several different mortgage brokerage companies. Throughout that time ALB Commercial Capital has been one of the most honest, transparent and flat out best brokers I have ever worked with. Their commitment to their clients and expertise make them a pleasure to work with.”
“ALB Commercial Capital is our primary source for multifamily and commercial lending. They always perform on their word, and are few of the reliable lenders that will close on our transactions in a timely manner. We would not trust our clients, transactions, and 1031 exchanges with any other lender, and would highly recommended them to anyone looking for a lender that will go above and beyond their scope of responsibilities with the objective in closing your transaction.”
“I have been working with Leonard Manriquez and his Team at ALB Commercial Capital for the last 5 years. Leo and his associates bring a level of professionalism to every transaction and provide their clients with the best possible service. ALB Commercial Capital is one of the top leaders in the Commercial Real Estate Brokerage market today. We have built a strong working relationship together and would highly recommend their services to anyone looking into investment properties.”
“Dear Leo, I wanted to take a moment to formally thank you for the time and effort you and your team have spent working on our behalf. After having helped us with so many Apartment loans-and always with the best terms- I can say with honesty that your work is not just outstanding in terms of content, but also through your kind demeanor in how you present it. We look forward to working with ALB Commercial Capital through you in the future for all our commercial real estate needs.”
“ ALB Commercial Capital is incredible! They continuously help me in meeting all my needs when funding my loans. Whether your needs are great or small, ALB commercial is the way to go.”
“I have been working with and referring clients to Efon for the last 7 years. The transactions I have been involved with and also my referral transactions have gone very smoothly. Efon and ALB have proven to be a great resource for Multi-Family lending.”
“As a client and an agent, I always recommend ALB Commercial Capital. I have lost count of how many loans I have done with them, but they have always delivered even on the most complicated loans. You will not find a more experienced and skilled Brokerage to get your loan to funding.”
Very professional, ALB guys go above and beyond to help achieve the goals. I can’t imagine looking to any other place.
"Leonard Manriquez and his team at ALB Commercial Capital have been an invaluable resource as we have grown our business over the last decade. Mr. Manriquez has a strong knowledge of the industry and is able to problem solve at a high level. We have worked with him on more than $100M worth of transactions and have never been disappointed with his ability to secure the best rate and terms available. The ALB Commercial Capital team is motivated, hardworking and very smart. Highly recommended."