Education
Plain-language explanations of commercial real estate financing terms and concepts.
A short-term loan (typically 6-36 months) used to "bridge" the gap between acquiring or repositioning a property and securing permanent financing.
A subordinate loan that sits between senior debt and equity in the capital stack, typically carrying higher interest rates in exchange for filling the financing gap.
An equity investment that receives a priority return before common equity holders, sitting between mezzanine debt and common equity in the capital stack.
The first mortgage or primary loan on a property, holding the highest priority claim on cash flow and sale proceeds in the capital stack.
Any debt that ranks below senior debt in repayment priority, including mezzanine loans and B-notes, carrying higher interest rates to compensate for greater risk.
A loan where the borrower pays only interest during the loan term (no principal reduction), resulting in lower monthly payments but a full principal balance due at maturity.
The duration and structural features of a bridge loan, including term length, extension options, interest rate structure, prepayment provisions, and reserve requirements.
The subordinate tranche of a whole loan or CMBS securitization, carrying higher risk and higher yield than the senior (A-note) portion.
An asset-based, short-term loan from a private lender, with faster closing and looser qualification requirements but higher interest rates than conventional financing.
Long-term financing (5-30 years) for stabilized commercial properties, replacing bridge or construction loans with lower rates and amortizing payment structures.
The gradual repayment of a loan's principal balance over time through scheduled payments that include both interest and principal, gradually reducing the balance owed until the loan is paid off.
A loan where the lender's only recourse in default is the mortgaged property itself, without a personal guarantee against the borrower's other assets.
Specific acts of borrower misconduct, such as fraud or unauthorized transfers, that convert an otherwise non-recourse loan into personal liability for the sponsor.
A pre-negotiated right allowing a borrower to extend a loan's maturity date beyond its initial term, usually subject to performance tests and a fee.
A financing structure that combines a short-term bridge loan with a pre-negotiated path, or the same lender's commitment, to convert into long-term permanent debt.
Capital provided to finish a partially built or stalled construction project, often after the original construction lender or general contractor has been unable to continue.
A loan secured by unsold, completed condominium units, allowing a developer to hold and market inventory while accessing capital rather than waiting for individual unit sales to close.
Financing secured by raw or entitled land, typically carrying lower leverage and higher rates than improved property because land generates no income to service debt.
A portion of loan proceeds set aside at closing to fund scheduled interest payments during a period when the property is not yet generating enough income to cover debt service.
A portion of a loan committed at closing but held back and disbursed in draws over time as the borrower completes renovation, construction, or leasing milestones.
A contract between a senior lender and a subordinate lender that defines each party's rights, remedies, and priorities in the event of a borrower default.
Contractual obligations in a loan agreement that require or restrict specific borrower actions, such as maintaining minimum liquidity or DSCR, throughout the life of the loan.
The layered structure of all capital sources used to finance a real estate investment, arranged from lowest risk (senior debt) to highest risk (common equity).
Capital provided by a co-general partner alongside the lead sponsor, sharing in GP-level economics, responsibilities, and decision-making authority.
Capital provided to fund earnest money deposits during the due diligence period, allowing sponsors to control deals with less personal capital at risk.
A loan where the borrower has stopped making payments (typically 90+ days delinquent), representing both a distressed situation and a potential investment opportunity.
The process of restructuring a property's capital stack, replacing existing debt or equity partners, to improve terms, return capital to investors, or bring in new capital.
An investment strategy focused on acquiring underperforming properties, improving them through renovations or better management, and increasing income and value.
The process of constructing a new commercial building from the ground up, involving land acquisition, entitlements, construction, and lease-up or sale.
The major property categories in CRE, multifamily, office, retail, industrial, and land, each with distinct risk profiles, income characteristics, and market dynamics.
Investing in residential rental properties with 5+ units, offering diversified income streams, favorable financing options, and strong demand fundamentals.
Capital provided quickly to a distressed property or sponsor facing a maturity default, cash shortfall, or capital call, to prevent foreclosure or a forced sale.
The lender's own underwriting investigation into a property, sponsor, and loan request, conducted independently of and in parallel with the borrower's own due diligence process.
A preliminary, mostly non-binding document outlining a proposed loan's key terms, including amount, rate, and structure, that guides negotiation before formal loan documents are drafted.
The ratio of a loan amount to the appraised value of the property, used by lenders to assess risk. Lower LTV means less risk for the lender.
A metric that measures a property's net operating income relative to its total debt obligations, indicating the property's ability to service its debt.
The ratio of net operating income to property value, used to estimate the return on a real estate investment and compare properties.
Total property revenue minus operating expenses (excluding debt service and capital expenditures), representing the income a property generates from operations.
The comprehensive investigation of a property before acquisition, including financial analysis, physical inspection, legal review, and market research, to verify assumptions and identify risks.
A ratio that measures a loan's risk by dividing a property's net operating income by the loan amount, independent of interest rate or amortization.
A ratio comparing the loan amount to the total cost of acquiring and completing a project, used to size construction and value-add financing.
The capitalization rate an investor assumes will apply when a property is sold at the end of the hold period, used to project the property's future sale value.
The individual or company that sources, structures, manages, and operates a commercial real estate investment, also known as the general partner (GP) or operator.
The amount of cash and readily convertible assets a sponsor has available, used by lenders to confirm a borrower can cover reserves, cost overruns, and debt service shortfalls.
The total value of a sponsor's assets minus liabilities, used by lenders to gauge a borrower's overall financial strength and ability to stand behind guaranties.
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