Year Constructed

Definition of Year Constructed

In the context of commercial mortgages, Year Constructed refers to the specific calendar year in which the initial construction of a building was completed and a final Certificate of Occupancy (or equivalent local permit) was issued. This date marks the official beginning of the building’s physical life and serves as the baseline for determining the asset's age during the underwriting process.

Detailed Description and Importance in Commercial Lending

The year a property was constructed is a critical data point for lenders, as it directly influences the risk profile, loan structuring, and valuation of a commercial real estate asset. Lenders use this date to gauge several key factors:

• Building Code Compliance: The year constructed indicates which building codes were in effect at the time of development. Properties built in more recent years typically adhere to more stringent safety, seismic, fire, and energy-efficiency standards.
• Physical Condition and CapEx: Older buildings generally require higher Capital Expenditure (CapEx) reserves. Lenders use the age of the property to estimate the remaining useful life of major systems, such as the roof, HVAC, and plumbing.
• Environmental Risks: The construction year helps identify potential environmental hazards. For example, properties built prior to 1978 are more likely to contain lead-based paint or asbestos, which may require specialized inspections or remediation.
• Loan Terms and Amortization: Many commercial lenders are hesitant to provide long-term amortization schedules (e.g., 30 years) for older properties unless they have undergone significant renovations. The Year Constructed often dictates the maximum "loan life" a lender is willing to offer.

Actual Age vs. Effective Age

While the Year Constructed represents the chronological age of the building, commercial mortgage underwriters also consider the Effective Age. If a property was built in 1980 but underwent a gut renovation in 2020, its effective age may be much lower than its actual age.

In such cases, lenders may look at two distinct dates:

• Original Year Built: The date of the first structure's completion.
• Year Renovated: The date when significant capital improvements were made to modernize the structure, which can improve the loan-to-value (LTV) ratio and interest rate offered to the borrower.

Impact on Insurance and Appraisal

The Year Constructed is also a primary factor in determining insurance premiums. Older buildings may be more expensive to insure due to outdated wiring or structural vulnerabilities. Similarly, appraisers use the construction year to select comparable properties (comps) when determining the Fair Market Value of the asset, ensuring that the valuation reflects the depreciation or historical significance of the building.