Reference

Glossary of Terms

Name: Iron Trust Capital Partners
Address: 5251 Westheimer Rd, Suite 935, Houston, TX, 77056, US
Telephone: +12107554522

The vocabulary a lender will use, defined in plain English. No jargon explained with more jargon.

Amortization: The schedule over which loan principal is repaid. A loan can have a 10-year term but a 30-year amortization — you make payments as if repaying over 30 years, then repay the remaining balance as a lump sum at year 10.
Assumption: Taking over an existing loan on a property you are buying, on its original terms. Valuable when the in-place rate is below market, but lender consent, an assumption fee and a full re-underwrite of the new sponsor are all required.
Bad boy carve-outs: Exceptions to non-recourse that make a guarantor personally liable for specific acts — fraud, misapplication of funds, unpermitted transfers, voluntary bankruptcy. Read them closely; the list varies far more between lenders than borrowers expect.
Balloon payment: The remaining principal due at the end of a loan whose term is shorter than its amortization. The reason maturity dates matter so much.
Basis point: One hundredth of a percentage point. A spread of 200 basis points is 2.00%. Universally abbreviated to bps and pronounced “bips.”
Bridge loan: Short-term, usually floating-rate debt for an asset in transition — lease-up, renovation, repositioning, or an imminent maturity — repaid by permanent financing or a sale.
C-PACE: Commercial Property Assessed Clean Energy financing. Long-term fixed-rate capital for energy, water, resiliency and seismic improvements, repaid via an assessment on the property tax bill and transferring with the property on sale.
Capital expenditure (CapEx): Spending on the physical asset that is capitalized rather than expensed: roofs, HVAC, parking, unit renovations. Lenders often require an annual CapEx reserve funded monthly.
Capitalization rate (cap rate): Net operating income divided by property value. The market’s shorthand for what a stream of property income is worth.
Cash management / lockbox: An arrangement where property revenue flows into a lender-controlled account. Springs into effect on a trigger such as a DSCR shortfall. Common in CMBS.
CMBS: Commercial mortgage-backed securities. Loans originated to be pooled and sold to bond investors. Non-recourse and often generous on leverage, but administered by a servicer with very little flexibility once securitized.
Debt service coverage ratio (DSCR): Net operating income divided by annual debt service. A 1.25x DSCR means the property generates 25% more income than the loan payment requires. The most common single constraint on loan size.
Debt yield: Net operating income divided by the loan amount. Because it ignores both the interest rate and the appraised value, lenders use it as a rate-independent floor on leverage. Most conventional lenders want 9–10% or better.
Defeasance: A method of prepaying a securitized loan by substituting a portfolio of government securities that replicates the remaining payments. Expensive and administratively heavy — often more so than borrowers anticipate.
DUS: Delegated Underwriting and Servicing — Fannie Mae’s multifamily program, under which approved lenders underwrite and share loan risk, which is why agency executions can move as fast as they do.
Effective gross income (EGI): Gross potential rent plus other income, less vacancy and collection loss. The top line lenders actually underwrite from.
Escrow / impound: Monthly amounts collected by the lender for taxes, insurance and reserves, held and disbursed on the borrower’s behalf.
Exit fee: A fee payable on repayment, common in bridge and debt-fund lending. Easy to overlook when comparing quotes on headline rate alone.
Ground lease: A long-term lease of land on which a building sits, with the improvements owned separately. Financeable, but the remaining lease term and lender-protection provisions drive everything.
Interest rate cap: A derivative that limits how high a floating rate can go. Usually a lender requirement on floating-rate debt, purchased up front, and its cost moves substantially with rate volatility.
Interest-only period: A period during which only interest is paid and no principal is amortized. Improves early cash flow and DSCR, and lenders grant more of it in competitive markets.
Loan-to-cost (LTC): Loan amount divided by total project cost. The sizing metric on construction loans, where there is no stabilized value to lend against yet.
Loan-to-value (LTV): Loan amount divided by appraised value. The metric everyone knows — though DSCR or debt yield is more often the binding constraint in practice.
Mezzanine debt: Subordinate debt secured by a pledge of the equity interests in the property-owning entity rather than by the real estate. Fills the gap between senior proceeds and required capital.
Net operating income (NOI): Effective gross income less operating expenses, before debt service, capital expenditure, depreciation and income tax. The number every commercial valuation and every loan sizing starts from.
Non-recourse: A loan where the lender’s remedy is limited to the property, with no general claim against the borrower’s other assets — subject always to bad boy carve-outs.
Operating expense ratio: Operating expenses as a percentage of effective gross income. A quick sanity check: a figure far below market usually means something has been left out.
Preferred equity: An equity position with a preferred return ranking ahead of common equity. Economically similar to mezzanine but placed inside the equity stack — often the only route when senior loan documents prohibit subordinate debt.
Prepayment penalty: The cost of repaying early. Common forms are step-down (declining percentage by year), yield maintenance and defeasance. It frequently matters more to total cost than the interest rate does.
Recourse: Personal liability for repayment beyond the property itself, typically through a guarantee. Standard on bank and construction debt, unusual on life company, agency and CMBS.
Rent roll: A schedule of every tenant, unit, lease term, rent and status. Along with the trailing twelve, the first document any lender asks for.
Reserves: Lender-required funds held for taxes, insurance, replacements, tenant improvements or leasing commissions. They reduce net proceeds at closing, so factor them in early.
SOFR: Secured Overnight Financing Rate. The benchmark that replaced LIBOR and the index most floating-rate commercial loans price over today.
Sponsor: The individual or group controlling the borrowing entity. Lenders underwrite the sponsor’s experience, liquidity, net worth and track record almost as closely as the property.
Springing lockbox: A cash management arrangement that activates only on a defined trigger event rather than at closing.
Term: How long the loan runs before the full balance is due. Distinct from amortization, and the source of most confusion between the two.
Trailing twelve (T-12): Operating results for the most recent twelve months. The primary evidence a lender uses to test whether the pro forma is credible.
Yield maintenance: A prepayment penalty calculated so the lender receives the same yield it would have earned had the loan run to maturity. Costly when rates have fallen since origination.

Reference Glossary

Definitions of the terms most frequently encountered in commercial real estate finance.

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