Resources
CRE Lending Glossary
Every term commercial real estate borrowers and investors need to know — from DSCR to yield maintenance. Clear, practical definitions from 28 years in the industry.
Amortization
The process of gradually paying off a loan over time through scheduled payments. A 25-year amortization means the loan payment is calculated as if the loan would be fully paid off in 25 years, even if the actual term is shorter (resulting in a balloon payment).
After Repair Value (ARV)
The estimated market value of a property after planned renovations are completed. Commonly used in hard money and fix-and-flip lending to determine the maximum loan amount.
Appraisal
A professional opinion of a property's market value performed by a licensed appraiser. Required by virtually all commercial lenders before closing. Cost typically ranges from $2,500–$10,000+ depending on property size and complexity.
Acquisition Loan
A loan used to purchase a commercial property. Can be structured as permanent debt (long-term) or bridge financing (short-term) depending on the property's condition and the borrower's business plan.
Balloon Payment
A large lump-sum payment due at the end of a loan term when the amortization period exceeds the loan term. Common in commercial real estate: a 10-year term with 25-year amortization means the remaining balance is due as a balloon at year 10.
Bridge Loan
A short-term loan (typically 6–36 months) used to "bridge" a gap — usually while a property is stabilizing, being renovated, or while permanent financing is arranged. Interest rates are higher than permanent loans due to the short-term nature.
Broker Opinion of Value (BOV)
An informal estimate of a property's value provided by a commercial real estate broker, typically prepared free of charge. Not as authoritative as a full appraisal but useful for quick deal analysis.
Cap Rate (Capitalization Rate)
NOI divided by property value, expressed as a percentage. A 6% cap rate on a property generating $120,000 NOI implies a $2,000,000 value. Higher cap rates generally mean higher risk and/or lower price markets. Lenders use cap rates to determine property value in appraisals.
CMBS (Commercial Mortgage-Backed Securities)
Commercial loans that are pooled together and sold to investors as bonds. CMBS loans offer competitive rates for stabilized, institutional-quality properties but come with strict prepayment penalties and limited flexibility.
Conduit Loan
Another term for a CMBS loan. Called "conduit" because the loan is originated through a conduit (mortgage banker) that pools and securitizes the loan for sale on the bond market.
Construction Loan
A short-term loan that funds the construction of a new building or major renovation. Funds are released in draws tied to construction milestones. Converts to permanent financing upon project completion.
Credit Tenant
A tenant with a high credit rating (typically investment-grade) who signs a long-term lease. Properties leased to credit tenants command lower cap rates and more favorable financing.
Debt Yield
NOI divided by loan amount, expressed as a percentage. A more conservative measure than DSCR or LTV that lenders use to stress-test a loan. Most CMBS lenders require a minimum debt yield of 8–10%.
DSCR (Debt Service Coverage Ratio)
The ratio of a property's Net Operating Income (NOI) to its annual loan payments (debt service). A DSCR of 1.25x means the property generates 25% more income than needed to cover the loan payment. Most lenders require a minimum DSCR of 1.20x–1.25x.
Draw Schedule
A pre-agreed schedule of when construction loan funds are disbursed based on completed construction milestones. An inspector typically verifies completion before each draw is released.
Due Diligence
The process of investigating and verifying all material facts about a property and loan transaction before closing. Includes appraisal, environmental reports, title review, lease review, financial analysis, and physical inspection.
Effective Gross Income (EGI)
Gross Potential Rent minus vacancy and credit loss. Represents the realistic income a property generates after accounting for empty units and non-paying tenants. EGI is the starting point for calculating NOI.
Environmental Report (Phase I ESA)
A report that identifies Recognized Environmental Conditions (RECs) on a property — potential contamination from prior uses. Required by most commercial lenders, especially for industrial properties. A Phase II involves actual soil/groundwater testing.
Exit Strategy
The plan for repaying a bridge or short-term loan — typically through sale, refinance to permanent debt, or lease-up to stabilization. Bridge lenders require a documented exit strategy before approving a loan.
Fixed Rate
An interest rate that does not change during the loan term. Provides payment certainty but typically starts higher than a floating rate. Preferred by borrowers seeking stable cash flow.
Floating Rate
An interest rate tied to a benchmark index (Prime Rate, SOFR, etc.) that adjusts periodically. Generally starts lower than fixed rates but carries the risk of payment increases if rates rise.
Freddie Mac (FHLMC)
A government-sponsored enterprise that purchases and guarantees multifamily mortgages. Freddie Mac loans (Small Balance, Conventional) offer some of the best rates and terms for stabilized apartment properties.
Guaranty (Personal Guarantee)
A legal commitment by an individual (guarantor) to repay a loan if the primary borrower defaults. Most commercial lenders require personal guarantees from principals owning 20%+ of the borrowing entity. Non-recourse loans do not require personal guarantees.
Gross Potential Rent (GPR)
The maximum rent a property could generate if 100% occupied at market rents. The starting point in pro-forma analysis before deducting vacancy and credit loss.
Hard Money Loan
Asset-based lending where approval is primarily based on the property's value rather than the borrower's credit or income. Typically used for investment properties, fix-and-flip projects, and situations where speed or credit challenges make conventional financing unavailable. Higher rates (8–15%+) reflect higher risk.
HUD / FHA Loan
Loans insured by the U.S. Department of Housing and Urban Development (HUD) through its Federal Housing Administration (FHA) programs. Known for extremely long terms (35–40 years), full amortization, and competitive rates, but require lengthy processing times (6–12+ months).
Interest-Only (IO)
A loan structure where the borrower pays only interest during a specified period, with no principal reduction. Common in bridge loans and some permanent loans during initial periods. Maximizes cash flow but does not reduce the loan balance.
Institutional Lender
Large financial institutions — banks, life insurance companies, pension funds — that originate or invest in commercial real estate loans. Generally offer the best rates but have the most stringent underwriting requirements.
Life Company Loan
A commercial real estate loan funded by a life insurance company. Life companies are known for offering some of the most competitive long-term fixed rates, but only for high-quality, stabilized properties in major markets. Low leverage (typically 55–65% LTV).
LTC (Loan-to-Cost)
Loan amount divided by total project cost (acquisition + construction/renovation budget). Used primarily in construction and value-add lending. Most lenders limit LTC to 75–85%.
LTV (Loan-to-Value)
Loan amount divided by appraised property value, expressed as a percentage. The most fundamental measure of leverage in real estate lending. A 75% LTV means the lender is lending 75 cents for every dollar of property value.
Mezzanine Financing
Subordinate debt that sits between senior debt and equity in the capital stack. Mezzanine lenders accept higher risk (subordinate position) in exchange for higher returns. Often used to fill the gap between what a senior lender will lend and the equity available.
Multifamily
Residential rental properties with 5 or more units. Multifamily is one of the most liquid asset classes in commercial real estate, with strong lender appetite across banks, agencies (Fannie/Freddie), life companies, and CMBS.
NOI (Net Operating Income)
A property's income after deducting operating expenses but before debt service, depreciation, and income taxes. The most important metric in commercial real estate: NOI = Effective Gross Income − Operating Expenses. Lenders use NOI to calculate DSCR and cap rate.
Non-Recourse Loan
A loan where the lender's only recourse upon default is the collateral property — the borrower is not personally liable. Standard for CMBS and agency loans on institutional properties. Preferred by sophisticated investors seeking liability protection.
NMLS (Nationwide Multistate Licensing System)
The national licensing system for mortgage professionals. Commercial mortgage brokers are required to be licensed through NMLS. iCapitalBrokers NMLS number: #1699983.
Operating Expenses
Costs incurred in operating a commercial property, including property taxes, insurance, utilities, maintenance, property management fees, and reserves. Does NOT include mortgage payments. Operating expenses are deducted from EGI to calculate NOI.
Owner-Occupied Commercial Real Estate (CRE)
Commercial property where the owner also operates a business in the space (51%+ occupancy). Eligible for SBA 504 and SBA 7(a) loans, which offer some of the best long-term rates and down payment requirements.
Permanent Financing
Long-term commercial real estate debt, typically 5–30 years, on a stabilized property. Contrasted with bridge or construction loans. Permanent loans are typically lower rate and longer term.
Phase I ESA
See Environmental Report.
Prepayment Penalty
A fee charged when a loan is paid off before maturity. Common in CMBS (yield maintenance or defeasance), life company loans (step-down prepay), and some bank loans. Bridge and hard money loans typically have no prepayment penalty.
Pro Forma
A financial projection showing expected future income and expenses for a property. Used by lenders to underwrite construction and value-add loans where current financials don't reflect the property's potential.
Recourse Loan
A loan where the lender can pursue the borrower's personal assets beyond the collateral property if the borrower defaults. Most bank loans and many bridge loans are recourse.
Refinance
Replacing an existing mortgage with a new loan, typically to get a lower rate, change loan terms, or pull out equity (cash-out refinance). Common trigger: maturing balloon payment, expiring bridge loan, or rate environment change.
Rent Roll
A document listing all current tenants in a commercial property, their unit/suite, lease start/end dates, current rent, and any concessions. One of the first documents lenders request for income-producing properties.
SBA 504 Loan
A Small Business Administration loan program for owner-occupied commercial real estate. Structure: 50% from a bank, 40% from a Certified Development Company (CDC), 10% borrower equity. Known for below-market fixed rates on the CDC portion and 25-year terms.
SBA 7(a) Loan
The SBA's most flexible loan program, usable for real estate, equipment, working capital, and business acquisitions. Up to $5M. Partially guaranteed by the SBA, enabling lower credit requirements and higher leverage than conventional loans.
SOFR (Secured Overnight Financing Rate)
The benchmark interest rate that replaced LIBOR as the standard floating rate index for commercial real estate loans. Many bridge and construction loans are priced as "SOFR + spread" (e.g., SOFR + 3.50%).
Stabilized Property
A commercial property that has achieved its market occupancy rate (typically 90–95%). Stabilized properties qualify for permanent financing. Unstabilized or transitional properties typically require bridge financing.
Term (Loan Term)
The length of time before a commercial loan's principal balance is due. A 10-year term means the entire outstanding balance is due 10 years from closing. This is different from amortization, which affects how the payment is calculated.
Title Insurance
Insurance protecting the lender (and optionally the owner) against losses from title defects, liens, or claims against the property. Required by all commercial lenders at closing.
T12 (Trailing 12 Months)
The most recent 12 months of operating history for a property, used by lenders to assess actual performance. More reliable than pro forma projections for underwriting stabilized properties.
Underwriting
The process by which a lender evaluates the risk of making a loan. Includes analysis of the borrower's creditworthiness, the property's income and value, market conditions, and the quality of the collateral.
Upfront Fees
Fees paid at or before loan closing, including origination fees (typically 0.5–2% of loan amount), appraisal, environmental reports, legal fees, and title insurance. Part of the total cost of a commercial loan.
Vacancy Rate
The percentage of leasable space in a property that is currently unoccupied. Lenders typically underwrite to a "stabilized vacancy" assumption (5–10%) even if the property is currently fully occupied, to account for future turnover.
Value-Add
A commercial real estate investment strategy involving properties with below-market occupancy or rents that can be improved through renovation, re-leasing, or better management. Value-add properties typically require bridge financing rather than permanent loans.
Yield Maintenance
A prepayment penalty calculation on CMBS loans designed to make the lender "whole" — the borrower must pay the present value of all future interest payments that would have been received. Often the most expensive form of prepayment penalty.
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