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 and operating expenses, including property taxes, but before debt service, income taxes and capital expenditures. Lender net cash flow may also deduct replacement reserves. 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. How to calculate debt yield →
- 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 →