Commercial real estate loans include loans secured by liens on office buildings, condominiums, leaseholds, cooperatives, forest tracts, land sales contracts, construction project loans, and oil and gas and other types of mineral rights. Commercial loans secured by real estate can be divided into two categories based on the source of repayment: credit-based loans and project financing.
Agricultural real estate loans include loans secured by liens on farms, ranches and aquatic operations.
Credit-based loans are loans secured by real estate that will be repaid from the borrower’s business operations or personal assets. Although the primary collateral for the loan is real estate, the real estate is not the source of repayment. In many instances, these loans are used to finance the acquisition of an owner-occupied business premises that has an economic life similar to the term of the loan. In other cases, they are term loans used for other business purposes, such as working capital. In both cases, however, repayment is expected from the cash flow of the business rather than from the underlying real estate. This Chapter covers credit-based loans secured by real estate.
A Bank may have collateral in addition to real estate to secure credit-based loans. The Texas Secured Lending Guide published by the Texas Bankers Association should be reviewed for loan documentation necessary for loans secured by additional UCC collateral.
Project or construction financing is repayable primarily from income anticipated from the sale or lease of future improvements to real estate. The credit capacity of the borrower and any guarantors are secondary sources of repayment. See “Commercial Construction Lending,” Chapter 11 and “Residential Development Lending,” Chapter 12.
Finally, on occasion the Bank may make a loan secured by a completed commercial real estate project in which existing lease rental revenue is the source of repayment. The basic real estate loan documentation package discussed in Chapter 2 “Basic Real Estate Loan Documentation” is appropriate together with the documents outlined in the commercial lease checklist in Chapter 10, “Leases and Leasehold Improvements.” These documents include an Assignment of Rents and Leases (if not included within the deed of trust) and Tenant Estoppel Certificates. These forms are located at the end of this Chapter but discussed in greater detail in Chapter 10.