Commercial Loans Blog

How To Underwrite Commercial Loans - Part 2

Posted by George Blackburne on Tue, Nov 20, 2018

Screen Shot 2018-10-22 at 8.31.36 PMYou really should pay close attention to what I am teaching you here.  This is the meat-and-potatoes of commercial real estate finance ("CREF").

Let's suppose you're a starving commercial loan broker, and you can't afford my wonderful nine-hour course, How To Broker Commercial Loans.  Maybe you can't even afford to buy the written training manual, Underwriting Commercial Loans.  I have good news.  You can now access much of this wonderful training for free on

C-Loans is slowly making this wonderful training manual available for free online.  We covered the first ten chapters in a recent blog article, How To Underwrite Commercial Loans - Part 1.  Today's training article continues with Chapters 11 through 20.


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Chapter 11:  As you branch out into commercial real estate finance ("CREF") for the first time, your early loans should be apartment loans.  This chapter explains how to prepare a Pro Forma Operating Statement (a budget for the next twelve months, while setting aside reserves for future replacements) on an apartment building.

Chapter 12:  Here is what an apartment Pro Forma Operating Statement should look like:

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Chapter 13:  When you are ready to expand into commercial loans, you will need to know how to prepare a Pro Forma Operating Statement on a commercial building.  This chapter explains how.

Chapter 14:  Here is what a sample Triple-Net Pro Forma Operating Statement looks like:

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Chapter 15:  One of the hardest Pro Forma Operating Statements that you will ever have to prepare is one where some of the tenants are triple-net tenants, and some of the tenants are full service tenants.  This situation occurs when a hot, brand new shopping center opens and leases out on a triple-net basis. Later, as the shopping center ages, new tenants will only sign if the lease is full service.  Here's how to handle it.

Chapter 16:  What is a Reserve for Replacement?  You're rushing to get a package out, and you know that you must include one; but how on earth do you compute a Reserve for Replacement?


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Chapter 17:  What on earth is a cap rate?  What do you do with it?  You've wondered about this for years, haven't you?

Chapter 18:  The Net-Worth-to-Loan-Size Ratio is an extremely important ratio in commercial real estate finance.


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Chapter 19:  Toxic contamination liability is a HUGE issue in commercial real estate finance.  What is a Level I toxic report?  What is a Level II?

Chapter 20:  This is one of the most important chapters of this Underwriting Manual, and it is a great primer on the subject of commercial construction loans.

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Topics: commercial loan underwriting ratios