• Annual Debt Service

    Annual debt service refers to the complete amount paid annually on a commercial real estate loan. It encompasses both the principal and interest payments, with the specific amounts determined by the loan’s amortization schedule.

  • APR

    Annual Percentage Rate: this is the total yearly cost of taking out a loan and it is measured in the percentage of the loan.

  • Balloon Payment

    A balloon payment is a large lump sum payment due at the end of a loan term, typically associated with certain loans. It allows for lower regular payments but requires borrowers to make a substantial final payment or refinance the remaining balance.

  • Bridge Loan

    A bridge loan is a temporary financing solution that provides borrowers with time and/or immediate funding until they secure permanent financing. Bridge loans are commonly utilized when borrowers are renovating a property or seeking a long-term commercial tenant. Their purpose is to bridge the gap between current and future financing needs, offering flexibility during transitional phases of a business venture.

  • Cap Rate

    The cap rate, also known as the “capitalization rate,” is a valuation method used to assess a property’s income-generating potential. Expressed as a percentage, it is determined by dividing the property’s net operating income by its purchase price. The cap rate offers insight into the property’s profitability and serves as a benchmark for comparing investment opportunities.

  • Capital Gain

    The taxable income resulting from selling an investment property, calculated by subtracting sales-related costs, adjusted basis, suspended losses, excess cost recovery, and recapture of straight-line cost recovery.

  • Contingency Reserve

    Additional funds set aside during construction or renovation projects to cover potential cost overruns.

  • Collar

    Upper and lower limits defined on an adjustable-rate mortgage, often referred to as “floor” and “cap.”

  • Cost Basis

    Total property cost, including hard and soft costs, minus depreciation. Capital gains are calculated by subtracting the cost basis from the sales price.

  • Defeasance

    A method to reduce fees when prepaying a fixed-rate CRE loan by exchanging collateral with another cash-flowing asset instead of cash payment.

  • Discount Rate

    The rate used to discount money or cash flow, accounting for the risk-free rate of interest and risk premium.

  • DSCR

    Debt service coverage ratio, reflecting the relationship between a property’s annual NOI and mortgage debt service.

  • Exit Fee

    A one-time payment to the lender when fully repaying a loan, either through prepayment or at maturity.

  • Fixed Interest Rate

    A fixed interest rate is when the interest rate doesn’t fluctuate for the duration of the loan. This means your payment will stay the same month to month.

  • Gross Income

    Gross income is the sum of money you earn in a year before taxes and other deductions. These earnings include wages, salaries, interest payments, etc.

  • Gross Rent Multiplier

    A method to value a property based on projected annual gross rents multiplied by a given factor.

  • Hard Costs

    Expenses related to physical aspects of a real estate deal, such as construction materials and labor.

  • Lender

    Entity providing a loan for a commercial real estate transaction, often a bank.

  • Leverage

    Utilizing debt in real estate financing to amplify investment returns.


    London Interbank Offered Rate, the interest rate at which banks lend funds to each other in the international market.

  • Loan Amortization

    Loan amortization is the spreading out of payments over multiple periods.

  • Loan-To-Cost-Ratio

    Comparison of the loan amount to the cost of constructing a project, helping lenders assess risk before offering a construction loan.

  • Loan-To-Value-Ratio

    Loan amount divided by the property value, representing the borrowing amount relative to the property’s total market value.

  • Mezzanine Loan

    Intermediate debt between secured senior debt and equity, not secured by the asset itself.

  • Net Operating Income

    Potential rental income plus other income, minus vacancy, credit losses, and operating expenses.

  • Open-Ended Construction Loan

    Commercial mortgage allowing additional borrowing up to a specified limit without obtaining a separate loan.

  • Operating Expenses

    Cash outlay for property operation and maintenance, including taxes, insurance, management fees, utilities, and legal/accounting expenses.

  • Origination Date

    Start date of a new loan.

  • Portfolio Loan

    Loan kept on a lender’s books rather than being sold off, potentially subject to less stringent underwriting requirements.

  • Principal

    Principal is the initial amount of money you initially agreed to pay back.

  • Rent Roll

    Record of tenants’ names and rents due, providing proof of property cash flow.

  • Small Balance Commercial Loan

    Loan under $5 million offered for various commercial properties, typically with less rigorous underwriting requirements and faster closing.

  • Soft Costs

    Construction-related fees not directly tied to labor or building materials, such as origination, architecture, and accounting fees.

  • Total Debt

    Aggregate debt incurred for property financing, including construction debt, mezzanine financing, bridge loans, and permanent financing.

  • Variable Interest Rate

    A loan with a variable interest rate is when the interest rate fluctuates over time, this means that the payment may not stay the same.


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