Property owners routinely borrow money to purchase additional real estate assets. But, as with any loan, executing the loan information elements, including covenants, amortization schedules, collateral and critical dates, is a complicated business. The level of difficulty largely depends on the technology involved. Some borrowers go low-tech, tracking their information manually with separate spreadsheets and accountants for each property and loan. That approach, however, is time-consuming, error-prone and risky due to the amount of data transfer and multiple system access involved. When manual processes dominate, it’s hard to execute loan tracking obligations, much less gain a clear view of loan status across a portfolio. Debt Manager: Less Risk, More Transparency So what’s an easier, more efficient way to track debt and gain full visibility? Many property owners are aggregating all their debt information in a single technology platform, eliminating the need for multiple spreadsheets, additional accounting staff and disparate data. With no data transfers and a single source of the truth, they can quickly identify key information such as covenant compliance requirements, upcoming debt obligations and principal interest payments for the next month, quarter or any other timeframe. Yardi Debt Manager eliminates the risks involved in manual loan tracking processes and delivers transparency to all users, including executives and key stakeholders. It’s a comprehensive system for borrowers and lenders that centralizes loan data, eliminates spreadsheets and automates loan calculations. Another key advantage of Debt Manager is its ability to tie debt information to the general ledger, effortlessly generating it into financial statements, and seamlessly incorporating debt payments into AP and AR payment processing. All users have visibility into loans, from a high-level summary view to payment history and the lowest level–details about a given loan. Uniland Development Company is a full-service commercial real estate...
Less Risky Business
With Yardi Debt Manager
Financing the acquisition of real estate assets can maximize your returns. However, borrowing money not only puts liability on your balance sheets; it can also come with extra headaches and tedious tasks for you and your team, including tracking amortization and payment schedules, meeting covenants, and tracking collateral and critical dates. Executing all these obligations accurately is necessary to minimize risk throughout the duration of a loan. Consider a loan-to-value covenant, for example, a lender-imposed restriction that compares the value of a property to the loan’s value. Borrowers need to monitor this figure because falling property valuation could potentially trigger additional financial costs that can further reduce the asset’s return to investors. Another common covenant is the debt service coverage ratio, the ratio of NOI to the debt service amount. This figure indicates whether the property generates sufficient net operating income to meet each month’s debt payment, revealing the borrower’s likelihood of exceeding the thresholds and potentially falling into default. This covenant, too, requires close monitoring based on the current forecasts in place at the properties. Discovering you have breached a covenant as it occurs is far too late in the game to correct it. Having some visibility into forward-looking information is a key aspect of risk reduction. But tracking loan information using manual data entry and transfers among multiple software systems is time-consuming, inefficient and prone to error. As a result, many borrowers are turning to new technology solutions that provide full visibility to reduce risks and drive informed decision-making. And that’s why Yardi Debt Manager is gaining traction among real estate borrowers. This solution eliminates the risks involved in manual loan tracking processes and delivers transparency to all users, including executives and key stakeholders. It centralizes loan data, provides a comprehensive system...
Art of the Covenant
Best Practices for Minimizing CRE Borrowing Risk
Covenants – agreements between a debtor (borrower) and creditor, or lender, are a staple of commercial real estate loans. Designed to reduce risk for lenders, loan covenants commit the borrower to execute certain behaviors, such as making principal and interest payments when due, and avoid others, such as selling the assets that underpin the loan without first repaying it in full. Certain economic conditions – falling portfolio values, high operational expenses, rising vacancy rates – increase the risk of violating, or breaching, a loan covenant, by being late on payments or reporting or by failing to meet financial benchmarks. One example of a covenant breach is a CFO missing a debt service ratio, which measures the cash flow available to pay current debt obligations. That could result in the lender calling the loan, forcing the company to obtain financing to repay the called loan. Avoiding such a scenario requires transparency in lender requirements, deep understanding of the factors that influence debt such as forecasts and rents. “Covenant tracking is a big trend now. On the borrower side, the emphasis is on transparency and getting insight into debt portfolios,” observes Chris Barbier, senior manager of investment management for Yardi. How can borrowers minimize risk and maximize efficiency in managing their loan covenants? One of the most reliable ways involves using one technology platform rather than multiple systems for loan, asset management and investment activities. “If you’ve got an operating property – which is usually the collateral for the loan in a system – and then you’ve got loans being tracked somewhere else, the two processes are not aligned. A tightly integrated solution allows for better transparency and risk management,” Barbier says. A single technology system that centralizes all loan information and automates processes helps borrowers by: Ensuring deliverables are sent to lenders. Monitoring the compliance status of key covenants. Tracking and accounting for different types of loans Tracking changes in loan terms over time and their impact on the amortization schedule. Providing full visibility into asset operational performance such as loss of income and deterioration in asset values, making it easier to anticipate and deal with potential problems. Reducing manual errors by eliminating spreadsheets. Providing full visibility and an audit trail into payment history. Most importantly, such a system “provides a single source of truth. That means transparency from the investment to how the loan and underlying collateral are performing,” Barbier says. Learn how Yardi Debt Manager enables tracking and accounting for a loan portfolio and provides visibility into debt obligations with the underlying operating...
