Sponsor
 The lead developer, operator, or principal responsible for the project and capital strategy.

Guarantor
 An individual or entity that pledges to repay a loan if the borrower defaults.

Underwater
 A situation in which the value of an asset is less than the debt owed on it.

Burn-Off
 Gradual elimination of restrictive loan terms or personal guarantees over time.

Market Risk
 Risk of loss due to changes in market conditions like supply, demand, or pricing.

Pari Passu
 Latin for "equal footing." Used to describe two or more claims that rank equally in repayment priority.

Terms for Sponsors & Borrowers

Terms for Sponsors & Borrowers

Securitization
 The process of pooling loans or assets and turning them into tradable securities.

Asset-Based Lending (ABL)
 Loans secured primarily by tangible assets such as real estate, receivables, or equipment.

Liquidity
 Ability to access cash quickly or convert assets into cash with minimal loss.

Underwriting
 Risk assessment process used by lenders or investors to determine loan or investment terms.

Credit Facility
 Flexible financing arrangement, often structured as a revolving line of credit or multi-purpose loan.

Crowdfunding
 Capital raised by pooling small investments from many individuals, often via online platforms.

Market & Funding Mechanisms

Market & Funding Mechanisms

Joint Venture (JV)
 Partnership between two or more entities that share capital, risk, and control of a project.

Syndication
 Pooling capital from multiple investors to fund a single deal or portfolio.

Earn-Out
 Deferred payment contingent on the project or company hitting specified performance targets.

Convertible Debt
 Debt that may convert to equity under agreed-upon conditions, commonly used in early-stage financings.

Sale-Leaseback
 Transaction where a company sells an asset and simultaneously leases it back, freeing up capital while
maintaining control.

Take-Out Loan
 Long-term financing that replaces a short-term or bridge loan upon project stabilization.

Operating Agreement
 Legal document outlining the roles, rules, and profit distributions for an LLC.

Commitment Letter
 Formal offer from a lender or investor outlining terms and conditions of a proposed transaction.

Transaction & Deal Structuring Terms

Transaction & Deal Structuring Terms

Internal Rate of Return (IRR)
 Annualized rate of return accounting for the time value of money.

Equity Multiple
 Total return expressed as a multiple of invested capital (e.g., 2.0x means doubling the investment).

Debt Service Coverage Ratio (DSCR)
 Ratio of net operating income to debt obligations. A DSCR >1.25 is often required by lenders.

DSCR Cushion
 The margin by which DSCR exceeds minimum required levels — used to evaluate loan safety.

Hurdle Rate
 Minimum return a project must achieve before investors receive profit-sharing.

Waterfall
 Structure that governs the order of cash flow distribution among investors or partners.

Promote
 Additional share of profits awarded to the sponsor after achieving a certain return threshold.

Equity Kicker
 Upside participation granted to a lender or investor, often tied to project performance.

Performance & Return Metrics

Performance & Return Metrics

Covenants
 Lender-imposed rules or conditions a borrower must meet during the loan term.

Personal Guarantee
 A borrower’s personal commitment to repay the debt if the entity defaults.

Non-Recourse Loan
 Loan secured only by the collateralized asset. The lender cannot pursue the borrower’s other assets upon default.

Recourse Loan
 Allows the lender to pursue the borrower’s personal or business assets beyond the collateral.

Carve-Outs (Bad Boy Guarantees)
 Exceptions to non-recourse loans that trigger personal liability due to fraud or misrepresentation.

Title Insurance
 Protects buyers and lenders against defects in ownership or title to real property.

Zoning
 Regulations defining how land can be used (e.g., commercial, residential, industrial).

Entitlement Risk
 The risk that necessary approvals or permits for development will be delayed or denied.

Force Majeure
 A clause that protects parties from contractual obligations due to uncontrollable events.

Default Interest
 Higher interest rate applied after a loan default occurs.

Legal & Risk Terms

Legal & Risk Terms

Appraisal
 Independent valuation of real estate or business assets to determine fair market value.

Entitlements
 Legal approvals—such as zoning or permits—required before development or construction can proceed.

Draw Schedule
 Timeline for disbursing construction loan funds based on project milestones or completed work.

Hard Costs
 Direct construction costs including labor, materials, and equipment.

Soft Costs
 Indirect development expenses such as design, legal, permitting, and project management fees.

Cap Rate (Capitalization Rate)
 Rate of return based on expected annual income, calculated as NOI divided by asset value.

Exit Cap Rate
 Projected cap rate at time of sale or refinance, used to estimate future asset value.

Absorption Rate
 The speed at which available units or space are leased or sold in a given market.

Speculative Development
 Construction of a project without pre-leased space or committed buyers.

Real Estate & Development Terms

Real Estate & Development Terms

Amortization
 Gradual repayment of loan principal over time, typically through scheduled payments of principal and interest.

Bridge Loan
 Short-term financing used to cover funding gaps during transitions like acquisitions, lease-ups, or construction.

Capital Stack
 The hierarchy of capital sources in a project—typically structured as senior debt, mezzanine debt, preferred equity, and common equity.

Debt Yield
 A lender’s risk metric calculated by dividing net operating income (NOI) by the loan amount. Independent of cap rate or interest rate.

Loan-to-Value (LTV)
 Ratio of a loan amount to the appraised value of the asset. Lower LTV indicates lower lender risk.

Mezzanine Debt
 Subordinated financing between senior debt and equity. Often secured by a pledge of ownership interests.

Preferred Equity
 Equity with priority over common equity and fixed return characteristics. Sits below debt in the capital stack.

Recapitalization
 Restructuring of a project’s capital structure, typically to realign risk, reduce costs, or raise new funding.

Subordination
 Defines the repayment priority of capital layers; subordinated capital is paid only after senior claims are satisfied.

Capital & Financing Terms

Capital & Financing Terms