Organization and consolidation of your debt and loan information can facilitate a more proactive approach to debt management. While the majority of time allocated to commercial real estate (CRE) ownership is in asset management to maximize NOI and operational efficiencies, property performance and market conditions drive debt strategies. These debt strategies can vary based on any combination of factors including: optimal transactional timing, fixed or floating rate, lender/loan types, recourse/non-recourse, prepayment flexibility/yield maintenance/defeasance, shorter or longer loan terms, cash-in or cash-out, and interest rate hedging strategies. In many instances, after debt is placed it’s usually ‘set-and-forget’ until there is some kind of date/term pressure, covenant trigger, or as issues arise; then, interactions with the lender/servicer become necessary. But, how can you develop solid debt management practices? You have to first understand the 3 W’s: the What, When, and Why of CRE debt management.
What Does CRE Debt Management Entail?
CRE debt management starts with centralization of loan information within a specific software or platform, like LobbyCRE, that’s built to ingest loan information. This includes accurate extraction of loan/payment terms from loan documents so amortization/payment schedules can be generated, monitoring of key dates, financial covenant compliance, projection of interest rates (forward rate curve), estimation of prepayment exit costs like defeasance/yield maintenance, and how the market impacts floating rate loan payments and valuations.
When Should Debt Management Be Prioritized?
It’s never too early to get organized when it comes to loan terms, balances, monthly payments, and key dates, you also want to monitor how the ever-changing market rates may impact your loans. Our debt management clients vary from smaller portfolios of five loans to large REITs and fund managers with hundreds of loans, but every borrower has many moving parts across different lenders, products, payments, and covenants.
Why Is Effective Debt Management Essential?
You want to be proactive and look ahead, rather than justreact An ideal CRE owner would be proactive versus reactive to changing market conditions that affect asset management and debt/disposition strategies. A debt management platform should have integrated amortization schedules for fixed and floating rate loans, accompanying prepayment exit cost projections, current interest rates & implied forward rate curves, floating rate hedge tracking for expirations/extensions, and engagement with dedicated analysts to match timing/objectives and minimize costs.
Lobby CRE empowers borrowers with centralized loan data, balance tracking, scenario modeling, and debt forecasting capabilities. Streamline your debt management processes and make well-informed decisions with Lobby CRE’s intuitive platform.
Contact a Thirty Capital Financial Analyst today to enhance your CRE debt management practices.
