Reference
CRE Debt Glossary
Plain-English definitions of the terms that show up in your loan documents — written by practitioners, not marketers.
27 terms · alphabetical
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Amortization
Amortization is the process of gradually paying down a loan's principal balance through scheduled payments over time, reducing the outstanding debt owed at maturity.
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Basis Point
A basis point is one one-hundredth of a percentage point (0.01%), used in CRE debt to express changes in interest rates, spreads, and loan pricing.
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Bridge Loan
A bridge loan is a short-term CRE financing instrument, typically 1-3 years with extensions, used to acquire or reposition assets before securing permanent financing.
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Cap Rate (Capitalization Rate)
Cap rate is the ratio of a property's net operating income to its current market value, used as the primary valuation metric in commercial real estate.
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CMBS (Commercial Mortgage-Backed Securities)
CMBS are bonds backed by pools of commercial real estate mortgages, securitized and sold to investors, creating a major source of CRE debt capital.
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Construction Loan
A construction loan is a short-term, floating-rate facility that funds the development of a commercial property, disbursed in draws as construction milestones are met.
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Covenant
A covenant is a contractual obligation in a loan agreement that requires the borrower to maintain specific financial metrics or operational standards throughout the loan term.
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Debt Service Coverage Ratio (DSCR)
Debt service coverage ratio is the ratio of a property's net operating income to its total debt service, measuring the property's ability to cover loan payments.
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Debt Yield
Debt yield is the ratio of a property's net operating income to the total loan amount, expressing the lender's return on their capital independent of interest rate or amortization.
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Defeasance
Defeasance swaps U.S. government securities in for the loan collateral, releasing the property while the loan itself runs on to maturity.
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Draw Schedule
A draw schedule is the timeline and milestone framework governing how construction loan proceeds are disbursed to the borrower as the project progresses.
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Escrow
Escrow in CRE lending refers to reserve accounts held by the lender or servicer where the borrower deposits funds for taxes, insurance, capital improvements, and other obligations.
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Fannie Mae DUS
Fannie Mae DUS (Delegated Underwriting and Servicing) is Fannie Mae's primary multifamily lending program, offering long-term fixed-rate loans through approved lender partners.
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Floating Rate
A floating rate is an interest rate on a CRE loan that adjusts periodically based on a benchmark index, typically SOFR, plus a fixed credit spread.
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Forbearance
Forbearance is a temporary agreement between borrower and lender to delay enforcement of loan remedies, giving the borrower time to cure a default or restructure.
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Freddie Mac SBL
Freddie Mac's Small Balance Loan program for smaller multifamily properties: fixed and floating-rate debt from $1M to $7.5M.
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Good-News Money
Good-news money refers to loan proceeds or refinancing capacity that becomes available when property performance exceeds original underwriting expectations.
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Hedge Mark-to-Market
Hedge mark-to-market is the process of valuing an interest rate hedge (swap or cap) at its current market value, reflecting what it would cost to enter or exit the position today.
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Interest Rate Cap
An interest rate cap is a derivative that protects a floating-rate borrower by capping the benchmark rate at a predetermined strike level for a defined period.
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Interest Rate Swap
A contract to exchange fixed for floating interest payments, letting a borrower turn floating-rate debt into a synthetic fixed rate.
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Interest-Only (IO)
Interest-only is a loan payment structure where the borrower pays only interest with no principal amortization for a defined period, reducing debt service during the IO term.
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ISDA
ISDA refers to both the International Swaps and Derivatives Association and the standardized Master Agreement that governs interest rate swap and cap transactions in CRE lending.
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Loan Abstract
A loan abstract is a structured summary of a commercial real estate loan's key terms, provisions, and dates, extracted from the full loan document package.
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Loan-to-Value (LTV)
Loan-to-value is the ratio of the loan amount to the appraised value of the property, serving as a primary measure of leverage and lender risk in CRE financing.
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Maturity Date
The maturity date is the contractual date on which the entire remaining loan balance becomes due and payable, requiring either full repayment or refinancing.
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Net Operating Income (NOI)
Net operating income is a property's total revenue minus operating expenses, excluding debt service and capital expenditures, serving as the core income metric in CRE lending.
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SOFR (Secured Overnight Financing Rate)
SOFR is the benchmark interest rate that replaced LIBOR for U.S. dollar-denominated floating-rate loans, based on overnight Treasury repurchase agreement transactions.