The terms.
In plain language.
A practical reference for the financing conversation. Definitions help frame the discussion; transaction documents establish the actual terms.
Keep the
basis visible.
A ratio becomes useful when the income, value and payment assumptions behind it are clear.
Explore the calculatorNet operating income / NOI
Property income after operating expenses and before debt service. The specific treatment of reserves and other adjustments can differ by capital provider.
Debt-service coverage ratio / DSCR
Annual NOI divided by annual debt service. Use the same income period and the relevant payment basis.
Debt yield / DY
Annual NOI divided by loan principal, expressed as a percentage. This ratio does not incorporate the interest rate.
Capitalization rate
Annual NOI divided by value. For stabilized income, dividing NOI by a selected cap rate gives a direct-capitalization value illustration.
Loan to value / LTV
Loan principal divided by the applicable property value. The value may be as-is, as-complete or stabilized; name the basis.
Loan to cost / LTC
Loan principal divided by eligible project cost. Eligible costs and the total project budget may differ.
Yield on cost
Stabilized annual NOI divided by total project cost. It is an unlevered income yield, not an IRR.
Interest-only period
A period with scheduled interest payments but no scheduled principal amortization. Principal remains due under the loan’s repayment terms.
Amortization
The schedule over which payments reduce principal. The amortization period can exceed the loan term, leaving a balance due at maturity.
Preferred equity
Equity with negotiated distribution priorities and rights. It is not interchangeable with debt; the governing agreements control.
Mezzanine debt
Debt subordinate to senior financing, commonly with collateral and remedies addressed through separate agreements.
Co-GP participation
A partnership arrangement alongside the sponsor. Contributions, responsibilities, control and economics are negotiated.
Sources & uses
A reconciliation of the capital available to the project and the costs or payments it must fund.
Recourse
The extent to which a lender can look beyond the collateral to a borrower or guarantor, as defined in the documents.
A term needs
more context?
We can discuss how the structure applies to the particular property and business plan.
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