Glossary

A loan that spans a gap between two other loans. A bridge loan can arise if a builder decides to pay off the higher interest construction loan but not sell the project for few years, when he feels the interest rates will improve. This type of loan is usually outstanding for two to five years and can be prepaid with little or no penalty.

An aggregator of commercial mortgage loans. A conduit generally aggregates commercial loans and then arranges for the securitization of those loans and the sale to Wall Street.

The substitution of collateral for a loan that has been securitized. The substitution allows a borrower to replace the lien on the property with acceptable replacement collateral, which is a portfolio of securities that replicates the loan’s remaining debt service schedule.

Also know as Private Money, Hard money loans are considered a non-bankable loan. For a hard money loan, the underwriting decisions are based on the borrower’s hard assets (real estate). Hard money loans typically close relatively quickly.

A mezzanine loan is a second mortgage loan that is subordinate to a first mortgage on a property. Typically used to maximize leverage on a property and/or to meet a first mortgage lender’s qualification requirements.

An intermediate term loan that sometimes bridges the gap between construction and permanent financing to allow occupancy and income to stabilize. The mini-perm may have a two-tiered payment structure including, small interest only for several years and then payment based on some amortization period. A mini-perm is a loan that does not fully amortize and, accordingly, requires a balloon payment upon maturity. The terms for mini-perms are usually from three to seven years.

An indebtedness that is secured by specific collateral (the real estate) and one that does not permit the lender access to the borrower’s or borrower principal’s assets in the event of default.

A REIT is a special corporate form of entity permitted by the Internal Revenue Code (IRC). In order to qualify as a REIT, the company must meet certain mandated requirements. Generally REIT’s are not taxed as long as they met those mandated requirements. REIT’s provide debt and equity on existing real estate.

The repaying of a debt with the proceeds from a new loan using the same property as collateral. The reason generally, for refinancing is to get a lower interest rate or to increase the loan amount.

A type of loan that allows a lender to seek financial damages if the borrower fails to pay the liability and if the value of the underlying asset is not enough to cover it. A recourse loan allows the lender to go after debtor’s assets that were not used as loan collateral in case of default.

The lender makes a commitment while not expecting to fund unless the project gets into trouble. The terms are sometimes rough. While no actual funding is usually involved, a developer can use a standby commitment to get a construction loan, that otherwise would be unattainable.

A step down prepayment penalty is graduated and steps down each subsequent year- for example, 5% in the first year that prepayment is allowed, 4% in the second, etc. It is, accordingly, reversed tiered.

A form of prepayment found in commercial mortgage loans. A Yield Maintenance Provision in most cases requires that the mortgagor pay the mortgagee, an equal amount equal to the discounted differences between a specified risk-free borrowing rate and the note rate.