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SHOPPING CENTER LOANS

Commercial Investors need a company that specializes in navigating the complex requirements unique to financing shopping center properties. Ocean Pacific Capital has provided the best financing for shopping centers in the U.S. and abroad since 1977.

A pricing model has been developed over time for shopping center mortgages. This pricing model has significance for shopping center investors and buyers looking to determine the correct level of the loan to value ratio as a buydown on the interest rate to be charged. It is relevant for the shopping center lender for the equilibrium interest to be linear in the riskless rate, production costs, and the price of the default and reinsurance options. Once thesee options have been priced, the lender will then determine the interest rate. By pricing separately the components of the mortgage, they can be restructured into tranched securities, which introduces the possibility of securitization and increased liquidity.

The adjusted-for-risk rate of interest is dependent on short term riskless rates, with the movements in returns to shopping center investments, LTV ratios, and capital requirements at the lender. An option structure exists inside a shopping center mortgage. This structure includes an income security and two put options, one sold by the lender with a relatively high strike price for the borrower to default and the other bought by the lender with a relatively low strike price at which the lender may reinsure.

This structure has been applied to shopping center markets and their representative financing programs. It can be expanded to cover other forms of loans and to determine optimal reinsurance premiums. In reality, lenders and private investors are not often able to reinsure directly, except in the form of the ultimate put to deposit insurance.

Shopping centers involve relatively large loan sizes, and the conclusion that relatively high production cost lenders must charge disproportionately high interest rates may place pressure on their borrowers. Given relationship lending, it is difficult for borrowers to switch lenders after an unanticipated rise in production costs. Rather than carry a large risk on one borrower, the lender requires low loan-to-value ratios that appear onerous, but are consistent with optimal behavior.

The lower put price is for the reinsurance against lender default. If there were comlete coverage of all default risk by a third party, such as the federal government, as is the case with residential mortgages underwritten and reinsured by Ginnie Mae, then the mortgage rate would only include prepayment risk above a riskless rate. Observed mortgage rates must includea a premium for the default risk that cannot be laid off with a reinsurer. Hence commercial mortgage rates, including those on shopping centers, include pricing for default risk.


For more information on a commercial shopping center loan , please contact us. For a listing of our recent commercial construction loan closings, please click HERE.


Whatever your financing needs,
we will tailor a loan that's right for you.

 


Daily Oil & Gas and Wall Street Journal News
6/17/19

Oil Slips Amid Economic Warnings
Posted on Sunday June 16, 2019

Oil slips further into a bear market as American factories and homebuilders offer the latest signs of weakening demand.

OPEC+ Can't Agree on a Meeting Date
Posted on Sunday June 16, 2019

OPEC and its partners continue to struggle to set a date for their next meeting.

C&J Energy and Keane to Merge in $1.8B Deal
Posted on Sunday June 16, 2019

Two Houston-based oilfield services companies have agreed to merge in order to form a leading company with an expansive footprint in active U.S. basins.

Argentinean LNG May Enjoy Geographic Advantage
Posted on Sunday June 16, 2019

Argentina's southern hemisphere location could lure Asian LNG buyers.

US Drops Six Oil, Gas Rigs
Posted on Sunday June 16, 2019

The U.S. dropped one oil rig and five gas rigs for a net loss of six rigs for the week.

New Oil and Gas Discovery in Norwegian Sea
Posted on Sunday June 16, 2019

Equinor, along with its partners, makes an oil and gas discovery in the Norwegian Sea.

Inpex Reaches New Deal on $20B Abadi LNG Project
Posted on Sunday June 16, 2019

Japan's Inpex Corp. reached a new deal with Indonesia on the $20 billion Abadi liquefied natural gas project.

API Urges Trump to Renegotiate with China
Posted on Sunday June 16, 2019

The American Petroleum Institute has signed a letter urging Trump to get back to the negotiating table with China.

Oil Short-Selling Surges
Posted on Sunday June 16, 2019

Oil skeptics are gaining ground fast as the outlook for global demand worsens.

Brent Holds Gains as Saudis Seek Cut Deal
Posted on Sunday June 16, 2019

Brent crude held gains as Saudi Arabia expressed hope that OPEC and its allies will agree to extend production cuts into the second half.

Wall Street Journal
Commercial News

6/17/19


BRE #:00619059
Charles Elfsten, President
Charles A. Elfsten
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