A-C
Amortization: The schedule for principal repayment over the life of a loan.
Bridge Loan: Shorter-term financing commonly used for transitional multifamily business plans. Learn more.
Cap Rate: Net operating income divided by value or purchase price, expressed as a percentage. Learn more.
Cash-on-Cash Return: Annual pre-tax cash flow divided by invested equity. Learn more.
CMBS: Commercial mortgage-backed securities financing, often used for stabilized commercial assets. Learn more.
Basis Point: One hundredth of one percent (0.01%). Spreads and rate moves are quoted in basis points (bps).
Balloon Payment: Large remaining principal due at maturity when amortization exceeds the loan term.
Benchmark Rate: Reference index (often Treasury or SOFR swap) plus spread determines coupon on fixed or floating debt.
Capital Stack: Ordered layers of capital for a deal — senior debt, mezzanine, preferred equity, and common equity — ranked by repayment priority and risk.
Covenant: Ongoing financial or operational test (e.g., DSCR floor, debt yield, occupancy) that borrower must maintain during the loan term.
Cross-Collateralization: Pledge of multiple properties to secure one loan, allowing lender to pursue any collateral in the pool on default.
D-F
Debt Service: Total principal and interest payments required by the loan structure.
Debt Service Coverage Ratio (DSCR): NOI divided by annual debt service; a core lender sizing metric. Learn more.
Debt Yield: NOI divided by loan amount; a lender risk metric independent of interest rate. Learn more.
Effective Gross Income: Scheduled income minus vacancy/credit loss plus other property income.
Exit Cap Rate: Assumed cap rate at refinance or sale used for sensitivity testing and valuation planning.
Effective Rent: Scheduled rent adjusted for concessions and vacancy — the revenue actually collected per occupied unit or square foot.
G-N
Guarantor: Individual or entity providing credit support to the borrowing structure.
In-Place NOI: NOI based on current operating performance before stabilization assumptions.
Interest Rate Cap: A derivative that limits floating-rate exposure on variable-rate debt.
LTV (Loan-to-Value): Loan amount divided by collateral value. Learn more.
NOI (Net Operating Income): Property income minus operating expenses, before debt service and capital items. Learn more.
Gross Potential Rent (GPR): Maximum scheduled rent at full occupancy before vacancy, concessions, and collection loss.
Interest-Only (IO) Period: Initial loan period where payments cover interest only, deferring principal amortization to boost near-term DSCR.
Joint Venture (JV): Partnership between sponsor and capital partner sharing equity, control, and economics per a waterfall agreement.
Mezzanine Debt: Subordinate debt secured by equity interests rather than the property, sitting between senior loan and preferred equity.
O-S
Prepayment Penalty: Cost to pay off debt early, often including yield maintenance or defeasance provisions.
Recourse: Lender ability to pursue guarantor assets beyond collateral under specified conditions.
Reserve Account: Escrowed funds for taxes, insurance, repairs, or replacement needs.
Seasoning: Operating history lenders require after acquisition or recap before approving certain refinance or cash-out terms.
Single-Purpose Entity (SPE): Borrowing entity structured to hold one asset with segregated accounts and limited cross-collateralization.
Stabilized NOI: NOI after business-plan improvements are completed and operations normalize.
Sponsorship: The borrower team and guarantor group assessed for experience, liquidity, and governance.
Operating Expenses (OpEx): Property-level expenses excluding debt service — taxes, insurance, management, maintenance, utilities, and reserves.
Preferred Equity: Equity with priority return and repayment rights over common equity, often with negotiated cure or takeout provisions.
Property Condition Assessment (PCA): Third-party engineering report evaluating physical condition, deferred maintenance, and replacement reserve needs.
Phase I Environmental Site Assessment: Third-party report identifying potential environmental contamination risks; Phase II follows if concerns are found.
Replacement Reserve: Ongoing capital set aside per unit annually for future major repairs and system replacements.
SOFR: Secured Overnight Financing Rate — current US benchmark for floating-rate commercial debt, replacing LIBOR.
Sponsor Track Record: Lender assessment of sponsor experience, closed deals, liquidity, net worth, and property management capability.
T-Z
T12: Trailing 12-month operating statement used to evaluate recent financial performance.
Term Sheet: Preliminary financing proposal outlining pricing, proceeds, covenants, and key conditions.
Underwriting: The lender process of evaluating cash flow, collateral, sponsorship, and risk.
Value-Add: Strategy focused on operational or capital improvements to increase NOI and value.
Yield Maintenance: Prepayment structure intended to preserve lender yield if a loan is repaid early.
Treasury Yield: Yield on US Treasury securities used as a benchmark for pricing fixed-rate agency and CMBS loans.
Waterfall Distribution: Ordered allocation of cash flow and sale proceeds among equity tiers and partners per JV or operating agreement.
Yield Curve: Graph of yields across Treasury maturities; shape influences spread and term choice for fixed-rate debt.