CRE lending glossary index by desk

This CRE lending glossary index maps glossary entries for commercial real estate credit desks across leverage, coverage, construction funding, cash control and security. Glosses follow glossary titles and descriptions.

Leverage and income metrics

• Loan to Value (LTV): Loan to value (LTV) is the ratio of credit extended to the market value of the real estate securing or being improved by that credit.
• Loan to Cost (LTC): Loan to cost (LTC) is the ratio of credit extended to the total cost of a property including construction costs at origination.
• Debt Yield: Debt yield is the ratio of net operating income to loan amount, expressed as a percent and independent of interest rate and amortisation.
• Debt Service Coverage Ratio (DSCR): Debt service coverage ratio (DSCR) measures cash flow available for debt service relative to scheduled principal and interest.
• Interest Coverage Ratio: Interest coverage ratio measures income available to meet interest costs, used in CRE and project finance credit assessment.
• Net Operating Income (NOI): Net operating income is annual property gross income less operating expenses, before debt service, depreciation and income taxes.
• Cap Rate: Cap rate is the ratio of a property's stabilised net operating income to its value or sales price, used to convert income into value.
• Borrowing Base: A borrowing base is the collateral-derived ceiling on revolving advances, calculated from eligible assets after advance rates and reserves.

Construction and cash control

• Construction Loan: A construction loan is credit extended to erect or rehabilitate buildings or other structures, including infrastructure needed for development.
• Lockbox Account: A lockbox account is a lender-controlled collection account that receives property rents before cash is swept to reserves and debt service.
• Debt Service Reserve Account: A debt service reserve account holds cash sized to cover a defined period of scheduled principal and interest if operating cash falls short.
• Cash Sweep: A cash sweep applies surplus project cash, after operating costs and scheduled debt service, to mandatory prepayment of principal.
• Sponsor: A sponsor is the equity party that owns and supports a project or CRE borrower, often through an SPV, with limited or defined recourse to lenders.
• Special Purpose Vehicle (SPV): A special purpose vehicle (SPV) is a ring-fenced project company that holds assets and borrows against project cash flows.
• Non Recourse: Non-recourse financing gives lenders no direct sponsor guarantee, so repayment rests on project or property cash flows and secured assets.

Covenants, security and KYC cross-cuts

• Covenant Breach: A covenant breach is a failure to meet a financial or operational undertaking in a loan agreement, often constituting or leading to an event of default.
• Cross Default: A cross default clause makes a default under other financial indebtedness an event of default under the facility, preserving parity among creditors.
• Material Adverse Change: A material adverse change clause treats a significant deterioration in the borrower's condition, business or prospects as a default or drawstop.
• Security Package: A security package is the collateral, assignments and support arrangements that secure lender claims over project or property cash flows and assets.
• Security Trustee: A security trustee holds and enforces shared security on behalf of syndicated lenders and other secured finance parties.
• Intercreditor Agreement: An intercreditor agreement sets ranking, payment waterfalls and enforcement controls among creditors in the same financing.
• Debenture: A debenture is a corporate instrument that creates security over a company's assets, commonly combining fixed and floating charges in favour of lenders.
• Customer Due Diligence: Customer due diligence is the anti-money-laundering process to identify and verify customers and beneficial owners and monitor the business relationship.
• Beneficial Ownership: Beneficial ownership identifies the natural persons who ultimately own or control a legal person or on whose behalf a transaction is conducted.
• Sanctions Screening: Sanctions screening checks customers, counterparties and transactions against official sanctions lists to identify prohibited parties or dealings.
• Basel III: Basel III is the Basel Committee's post-crisis package of minimum capital, leverage and liquidity standards for internationally active banks.