The Pulse

Current Market Conditions:

At Realty Sales we keep in constant contact with our lenders, the national market conditions, buyers and sellers and the commercial real estate climate as it pertains to interest rates, loan to value  and debt ratios.  The Commercial Real Estate Market is dynamic, fluid and always changing.  However, there are standards that we apply to MN Resort & Campground Sales to determine value. 

Below is the current market conditions as they apply to the MN Hospitality Industry and will be updated as necessary.  Some of the terms & acronyms may be new to you but they are defined in the following text towards the bottom of the page. 

 Interest rates:

• Commercial Bank Financing: 6.5% – 7.25%
• Bank Terms:  5 yr fixed, 20 yr.
• SBA 504: 5% – 5.9 %  <Loan structure>
• SBA Terms:  20 yrs. on real estate / 10 yrs. on equipment

Lending Guidelines:

• DCR:  1.25 +
• LTV: 50% to 80% max.

Desired Returns:

• Cap Rate: 10% +
• ROI:  8% +

Contract For Deed (most common factors):

• LTV:  80%  (20% down payment)
• Interest Rate:  7%
• Terms:  3-5 years w/ balloon payment.  30 yr. ammortization.

FMV:  Fair Market Value.  The supposed price at which a property would change hands within the current market climate.

LTV:  Loan to Value.  The percentage of a purchase price in which a lender will lend against the purchase price of a property.  The remaining balance of the purchase price will be comprised of the buyers down payment and / or subordinate financing.  The actual percentage loaned for a sale will be weighed against the banks determined DCR.

DCR:  Debt Coverage Ratio.  The DCR is calculated by dividing the available cash flow (ACF) by a property’s annual debt service. 

ACF:  Available Cash Flow.  The amount of cash available to service debt.  Typically the sum total of the taxable income, depreciation, officer compensation, interest, rents, etc., and other non-reoccurring or variable expenses.  Sometimes referrded to as NOI but should not be confused as such.

NOI:  Net Operating Income.  NOI is equal to a property’s yearly gross income less operating expenses.

ROI:  Return on Investment.  The return, expressed as a percentage, that a buyer would realize on their initial cash investment after all expenses and other benifits.

Cap Rate: Capitalization Rate.  The cap rate is the net operating income divided by the sales price or value of a property expressed as a percentage.

SBA:  The Small Business Administration.  Typically referenced to as the portion of the loan that is guaranteed by the federal government.

Here is a helpful website describing other financial and investment terms.