Money: tough terms.

The financing market can be summed up in these simple terms: money is very difficult to come by, and if you can get financing, the terms are going to be difficult.

Troubled properties, which can be bought at deep discounts from replacement costs, require innovative and creative financing techniques, which are not always available. Otherwise, the rule of the day is the better a property is leased, the better its chances of getting financing.

Who is lending in this environment? The life insurance companies are not very active, and, if they have capital, are circumspect as to where they put it.

The major players are the pension funds and credit companies. Money from those institutions is typically ear-marked for specific properties - net leased buildings, apartments, portfolio transactions or RTC deals. In some areas of the country, well leased industrial/warehouse facilities are also popular.

Because of the lack of conventional financing, participating mortgages are becoming more popular these days. In this type of arrangement, the lender gets a portion of the cash flow above debt service and any resale of refinancing proceeds.

For example, an owner of a retail center is experiencing short-term cash flow problems. An institution is providing capital to re-tenant the vacant space and replace the existing mortgage. In exchange, the institution receives a 35 percent interest in cash flow and resale or refinancing proceeds in excess of the loan amount. Amortization is based on a percentage of the remaining cash flow after debt service.

Self-liquidating money is also available. In a triple net lease, with a longterm, credit-worthy tenant, a borrower can get a better interest rate, at a better loan to value ratio, than can an owner of a typical multi-tenanted building. These arrangements usually require no offset to the tenants' stream of rental payments and carry pay rates as much as 100 basis points below conventional rates.

Interest rates depend on the length of the term; it's a great deal easier to get a good rate on a five to seven year loan than it is on a 10-year loan. Spreads range from 170 to 250 over Treasuries. On a five-year loan, interest rates can be in the area of 8.5 percent. On a 10-year loan, interest rates can go as high as 10 percent.

Amortization terms generally range from 20 to 25 years, with sporadic instances of 30-year schedules. Typically, a 65 percent to 75 percent loan to value ratio is sought by lenders, with debt service coverage of 1.25 to 1.35.