CREDIT

Vocabulary flashcards covering key credit concepts from the CRE lending notes.

Credit

An agreement between borrower (debtor) and lender (creditor) where funds are advanced and repayment of principal plus interest is required; secured via contracts such as notes, mortgages, UCC liens, guaranties.

Debtor

The borrower in a credit transaction who receives funds and owes repayment.

Creditor

The lender in a credit transaction who provides funds and is entitled to repayment.

Note

A written promise to repay a debt.

Mortgage

A loan secured by real estate; a common debt instrument in CRE lending.

UCC lien

A Uniform Commercial Code security interest used to secure a loan; can cover assets beyond real estate.

Guaranty

A promise by a third party to repay the debt if the borrower defaults.

Cap rate

Capitalization rate used to estimate real estate return; influenced by interest rates and discount rates; tends to rise with higher rates.

Discount rate

Rate used to discount future cash flows to present value; CRE cap rates reflect discount rate minus growth.

Interest rate

Cost of borrowing; affects levered yields and asset values.

NOI

Net Operating Income: property income after operating expenses, before debt service.

DSCR

Debt Service Coverage Ratio: NOI divided by total debt service; typically at least 1.20x for senior loans.

Debt Yield

NOI divided by loan amount; a lender-focused yield metric.

LTV

Loan-to-Value: loan amount divided by property value; typical senior thresholds ~65% or lower.

Senior loan / First mortgage

Highest-priority debt secured by the property; sized to meet DSCR, Debt Yield, and LTV hurdles.

Amortization

Schedule of loan principal repayments over the life of the loan.

Shortfall reserves

Cash reserves set aside to cover potential loan shortfalls.

Covenants

Borrower obligations and restrictions in loan documents to protect the lender.

Rate caps

Clauses that limit how high interest rates can rise on floating-rate debt.

Cross collateralization

Using multiple assets as collateral to secure a loan.

Cross defaults

A default on one obligation triggers default on related obligations.

Equity pledge

Pledging equity interests as security for a loan.

Mezzanine loan

Subordinate debt to a mortgage; not secured by the asset but by equity; higher interest; DSCR ≥ 1.05x; LTV up to ~85%.

Subordination

Priority arrangement where mezzanine debt is subordinate to senior debt.

Last-dollar exposure

The final amount owed by mezzanine debt beyond senior debt; last-dollar exposure in a default.

Predatory lenders

Lenders who use mezzanine financing to gain asset control on favorable terms.

LifeCos

Life insurance company lenders (LifeCos) in CRE financing.

CMBS lenders

Lenders that fund through Commercial Mortgage-Backed Securities financing.

Levered yield

Investment yield after accounting for debt financing (leverage).

Treasureies

Treasuries: government bonds used as a risk-free rate benchmark.

Risk-free rate

Theoretical return on an investment with zero risk, used as a baseline for discount rates.

WACC

Weighted Average Cost of Capital; average cost of debt and equity financing for a project.