Reference
CRE Debt Glossary
Plain-English definitions of the terms that show up in your loan documents, written by practitioners rather than marketers.
40 terms · alphabetical
A 1 term
B 3 terms
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Balloon Payment
A balloon payment is the unamortized principal due in full at a CRE loan's maturity, repaid through a refinance or a sale rather than from property cash flow.
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Basis Point
A basis point is one one-hundredth of a percentage point (0.01%), the unit used to quote CRE loan spreads, cap costs, swap rates and moves in Treasury yields.
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Bridge Loan
A bridge loan is short-term, floating-rate CRE financing, typically one to three years plus extensions, used until a property qualifies for permanent debt.
C 5 terms
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Cap Rate
Cap rate is net operating income divided by property value, expressed as a percentage, and the primary valuation shorthand in commercial real estate.
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CMBS
CMBS are bonds backed by pools of commercial real estate mortgages, sold to investors in tranches and serviced under a pooling and servicing agreement.
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Construction Loan
A construction loan funds development or major renovation in draws tied to milestones; typically floating over SOFR with terms of 18 to 36 months.
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Construction-to-Permanent Loan
A construction-to-permanent loan closes once, funds construction by draws, and converts to amortizing permanent debt when the project passes conversion tests.
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Covenant
A covenant is a binding loan provision requiring the borrower to meet financial or operational conditions, such as a minimum DSCR, for the life of the loan.
D 4 terms
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Debt Service Coverage Ratio
Debt service coverage ratio (DSCR) is net operating income divided by annual debt service; lenders commonly require 1.20x to 1.30x at origination.
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Debt Yield
Debt yield is net operating income divided by the loan amount, the return a property's income represents on the lender's capital regardless of loan terms.
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Defeasance
Defeasance releases a CMBS property from its lien by substituting Treasury securities that replicate the remaining loan payments; the loan runs to maturity.
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Draw Schedule
A draw schedule governs when a construction lender releases loan proceeds, tying each draw to completed milestones, inspections and lien waivers.
E 2 terms
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Escrow
Escrow is a lender-controlled reserve account funded by the borrower's deposits to cover taxes, insurance, tenant improvements and capital expenditures.
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Estoppel Certificate
An estoppel certificate is a signed statement in which a tenant or borrower confirms the current facts of a lease or loan and is bound to them.
F 4 terms
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Fannie Mae DUS
Fannie Mae DUS is Fannie Mae's multifamily lending program: approved lenders underwrite and service loans under delegated authority and share losses.
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Floating Rate
A floating rate is a CRE loan rate that resets periodically on a benchmark index, almost always SOFR, plus a fixed spread, so debt service moves with the index.
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Forbearance
Forbearance is a formal agreement in which a lender temporarily pauses its remedies after a default while the borrower works toward a refinance, sale or cure.
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Freddie Mac SBL
Freddie Mac SBL is the Small Balance Loan program for smaller multifamily properties: fixed and floating-rate agency loans from $1 million to $7.5 million.
G 2 terms
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Good-News Money
Good-news money is the extra loan proceeds or refinancing capacity a property earns when its performance materially exceeds the original underwriting.
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Guaranty
A guaranty is the guarantor's promise to pay or perform a borrower's obligations on a CRE loan if the borrower does not: payment, completion or carve-out.
H 1 term
I 4 terms
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Interest Rate Cap
An interest rate cap is a derivative that pays a floating-rate borrower whenever SOFR rises above a strike rate, bought upfront for a one-time premium.
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Interest Rate Swap
An interest rate swap exchanges fixed for floating payments, converting a floating-rate CRE loan into a synthetic fixed rate: swap rate plus loan spread.
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Interest-Only
Interest-only is a payment structure where the borrower pays interest and no principal for a set period, lowering debt service while the balance stays flat.
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ISDA
ISDA is the International Swaps and Derivatives Association; in CRE, the ISDA Master Agreement is the standard contract governing hedging swaps and caps.
L 4 terms
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Loan Abstract
A loan abstract is a structured summary of a CRE loan's key terms, provisions, dates and obligations, extracted from the full loan document package.
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Loan-to-Cost (LTC)
Loan-to-cost (LTC) is the loan amount divided by the total cost of a construction or value-add project; lenders size to the lower of LTC and loan-to-value.
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Loan-to-Value
Loan-to-value (LTV) is the loan balance divided by the property's appraised value, the leverage measure most CRE lenders cap at 65% to 80% at origination.
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Lockbox (Cash Management)
A lockbox is a lender-controlled account that collects a property's rents; hard, soft and springing lockboxes decide when the lender takes control of the cash.
M 2 terms
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Maturity Date
The maturity date is when a CRE loan's remaining balance comes due in full, usually as a balloon payment repaid through a refinance or property sale.
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Mezzanine Loan
A mezzanine loan is debt secured by a pledge of the ownership interests in a property's owner, ranking behind the senior mortgage and ahead of equity.
N 1 term
O 1 term
P 1 term
R 2 terms
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Recourse and Non-Recourse Loans
A recourse loan lets the lender pursue the guarantor's other assets for any shortfall after foreclosure; a non-recourse loan limits the lender to the property.
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Rent Roll
A rent roll is the lease-by-lease schedule of a property's tenants, terms, rents and deposits, and the source of the revenue behind NOI and DSCR tests.
S 2 terms
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SOFR
SOFR is the benchmark rate that replaced LIBOR on floating-rate CRE loans, published daily by the New York Fed from overnight Treasury repo transactions.
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Subordination
Subordination ranks the claims on a property so the senior lender is paid before subordinate lenders and equity, as set in intercreditor agreements and SNDAs.