Commercial Real Estate Finance Glossary
Plain-English definitions for the lender metrics used across the calculators and underwriting guides.
Glossary Terms
- NOI
- Net operating income. Annual property income after vacancy, credit loss, operating expenses, and reserves, before debt service and taxes. What is NOI in commercial real estate →
- DSCR
- Debt service coverage ratio. NOI divided by annual debt service, used to test whether property income covers the mortgage payment. Debt yield vs DSCR →
- LTV
- Loan-to-value. Loan amount divided by property value, used to measure collateral leverage. Debt yield vs LTV →
- CLTV
- Combined loan-to-value. Total debt from all loan layers divided by property value. LTV vs CLTV →
- Debt Yield
- NOI divided by loan amount. A lender income-cushion metric that ignores interest rate, amortization, and appraised value. What is debt yield in CRE →
- Cap Rate
- Capitalization rate. NOI divided by property value or purchase price, used to compare unlevered asset yield. Cap rate complete guide →
- Loan Constant
- Annual debt service divided by loan amount. It converts loan proceeds into annual payment burden. What is a loan constant →
- Amortization
- The schedule over which principal is repaid. Longer amortization usually lowers annual debt service and improves DSCR.
- Balloon Payment
- The remaining loan balance due at maturity when the loan term is shorter than the amortization schedule. Bridge-to-permanent refinancing →
- Replacement Reserves
- Funds set aside for future capital replacements. Lenders may deduct reserves when calculating underwritten NOI. CapEx and replacement reserves →
- Binding Constraint
- The loan sizing test that produces the lowest maximum loan amount. It controls final proceeds. How lenders size CRE loans →
- Annual Debt Service
- Total required mortgage payments over one year. It is the denominator in DSCR. CRE loan sizing example →
- Underwritten NOI
- Net Operating Income adjusted by the lender's underwriting standards, incorporating standardized vacancy floors, management fees, and replacement reserves rather than relying solely on historical financials. Underwritten NOI vs actual NOI →
- Tenant Improvements (TIs)
- The customized physical build-out of a commercial space to accommodate a new tenant's business requirements, paid for by the landlord.
- Cash Sweep
- A protective loan covenant that triggers when a property's performance drops below a specified debt yield or DSCR threshold, redirecting all excess property cash flow to a lender-controlled account. Debt yield covenants and cash sweeps →
- Agency Lender
- Government-sponsored entities (primarily Fannie Mae and Freddie Mac) that purchase and securitize multifamily loans under structured program tiers. Fannie Mae & Freddie Mac debt yield →
- Mezzanine Debt
- A subordinate layer of financing positioned directly below the senior mortgage and above the sponsor's equity, secured by a pledge of ownership interests. Mezzanine debt and global debt yield →