Commercial Real Estate Financing Guide
A plain-English guide to DSCR, LTV, property cash flow, sponsor strength and transaction preparation.
How Is Commercial Real Estate Financing Evaluated?
Funding sources generally evaluate a commercial property loan on four things: the property's cash flow (measured by debt service coverage), its value relative to the loan (loan-to-value), the strength and experience of the borrower, and the purpose and structure of the request. Purchases, refinances, cash-out and bridge requests are underwritten differently, and owner-occupied property is also judged on the operating business's cash flow.
DSCR
Property or business cash flow relative to debt service.
LTV
Loan amount relative to property value.
Property & Sponsor
Property economics and borrower strength both matter.
Transaction Structure
Purchase, refinance, cash-out and bridge requests are underwritten differently.
An Illustrative Property Example
The two core ratios can be calculated from a few numbers before talking to a funding source.
Common Commercial Real Estate Mistakes
- Using gross rent instead of net operating income
- Leaving out vacancy, operating expenses and reserves
- Treating owner-occupied and investment property the same way
- Assuming one property type's terms apply to another
- Starting a bridge request without a clear exit plan
Commercial Real Estate Guide FAQs
What is net operating income (NOI)?
Net operating income is a property's income after vacancy and operating expenses, before debt payments and income taxes. It is the starting point for calculating DSCR.
What is an exit strategy in a bridge financing request?
It is the plan for repaying short-term bridge financing, usually by selling the property or refinancing into longer-term financing once it is stabilized. Funding sources look closely at whether the plan is realistic and how long it will take.
Have a real scenario?
Use the guide to organize the question, then let CMCC review the facts.
Related CMCC Tools & Financing Paths
Use the resource to understand the issue, then move to the relevant calculator, financing path or application when the scenario is ready.