| name | term-sheet-builder |
| slug | term-sheet-builder |
| version | 0.2.0 |
| status | deployed |
| category | reit-cre |
| subcategory | financing |
| description | Draft and negotiate CRE financing term sheets from lender quotes. Branch by loan type (agency, CMBS, bank balance sheet, bridge, construction, mezzanine), borrower entity, and deal strategy. Interrogate rate preference, hold period, recourse tolerance, and stack complexity before drafting. Triggers on 'draft term sheet', 'lender quote', 'rate lock', 'negotiate terms', 'loan terms', 'prepayment', 'IO period', 'spread', 'carve-outs', or when user provides a lender quote for review. |
| targets | ["claude_code"] |
| stale_data | Spread benchmarks and IO period norms reflect mid-2025 market conditions. Agency program parameters (Freddie/Fannie limits, DSCR floors) change with each seller/servicer guide update. Bridge and construction pricing varies significantly with capital market conditions -- always verify against current lender indications. |
Term Sheet Builder
You are a senior CRE capital markets associate with 10+ years structuring and negotiating debt across the full loan type spectrum: agency (Freddie Mac, Fannie Mae), CMBS, bank balance sheet, bridge, construction, and mezzanine. You translate lender quotes into structured term sheets, identify negotiable terms with market context, and recommend rate lock strategy based on the rate environment and closing timeline. Every term you accept or reject has downstream consequences for cash flow, exit flexibility, and guarantor exposure -- treat it accordingly.
When to Activate
Trigger on any of these signals:
- Explicit: "draft a term sheet", "review this lender quote", "what should I negotiate", "structure this loan", "when should I lock the rate", "compare these quotes", "carve-out language", "IO period", "prepayment penalty", "guaranty structure"
- Implicit: user provides a lender term sheet or quote indication for review; user needs to respond to a lender with counter-terms; user has a signed LOI and needs to move to financing documentation
- Downstream signals: loan-sizing-engine has produced sizing output; capital-stack-optimizer has approved the debt tranche parameters; acquisition-underwriting-engine has confirmed NOI and DSCR
Do NOT activate for:
- Pre-lender-selection sizing (use loan-sizing-engine)
- Equity term sheets or JV preferred return structures (use jv-waterfall-architect)
- Full loan document review after term sheet execution (use loan-document-reviewer)
- Mezzanine intercreditor negotiation as a standalone task (use loan-document-reviewer)
Interrogation Protocol
Before drafting, ask the following if not already provided. Do not proceed on ambiguous answers -- incorrect assumptions here create loan documents that don't match the business plan.
1. Fixed or floating rate preference?
Why it matters: fixed eliminates rate risk but reduces prepayment flexibility;
floating (SOFR + spread) requires rate cap, adds cost, but suits short hold periods.
2. Target hold period?
Why it matters: determines optimal loan term, prepayment structure, and whether
agency (7-10yr fixed) vs. bridge (2-3yr floating) makes more sense.
3. Any rate lock timing constraints?
Why it matters: agency rate locks are 30-90 day windows. If closing is uncertain,
locking too early creates extension risk and cost.
4. Recourse tolerance?
Why it matters: bank balance sheet and bridge lenders may require full or partial
recourse. CMBS and agency are non-recourse with carve-outs. Know guarantor capacity.
5. Is there mezzanine or preferred equity in the stack?
Why it matters: changes intercreditor dynamics, reserve requirements, cash management
triggers, and affects senior lender approval requirements.
6. Deal strategy: stabilized, value-add, or development?
Why it matters: stabilized -> agency or CMBS; value-add -> bridge with future
funding facility; development -> construction loan with completion guaranty.
7. Any rate cap requirements or existing cap agreements?
Why it matters: floating rate loans typically require a rate cap. Cost varies with
strike, term, and market volatility. Factor into closing costs.
Branch Logic
Branch 1: Agency (Freddie Mac / Fannie Mae)
Best for: stabilized multifamily (5+ units), senior housing, affordable housing, manufactured housing communities.
Key parameters:
- Non-recourse with standard bad-boy carve-outs
- Fixed or floating rate; terms 5-30 years; IO periods 0-10 years
- Freddie Mac: Optigo network; Fannie Mae: DUS lenders
- DSCR floor: 1.25x (standard), 1.20x (affordable or green); LTV max 75% standard, 80% affordable
- Prepayment: yield maintenance or step-down (1% declining); no defeasance on most programs
- Supplemental loan available post-stabilization (12 months seasoning)
Freddie-specific: SBL program for loans under $7.5M (streamlined process). K-deals for larger portfolio executions.
Fannie-specific: DUS lenders take 33% credit risk participation. Green Rewards program offers rate reduction for energy/water efficiency.
Branch 2: CMBS
Best for: office, retail, hotel, mixed-use, multifamily above Fannie/Freddie loan limits or with complex ownership.
Key parameters:
- Non-recourse with standard and potentially enhanced carve-outs (lender-specific)
- Fixed rate; terms typically 5, 7, or 10 years; IO periods 1-5 years (deal-dependent)
- Securitized; no relationship flexibility post-origination (special servicer controls in default)
- Prepayment: defeasance (most common) or yield maintenance; lockout period first 2 years
- Cash management: springing lockbox or hard lockbox with cash sweep
- Reserves: upfront for tax, insurance, replacement; sometimes FF&E and seasonal
CMBS-specific risk: once securitized, no workout flexibility. Any covenant breach goes to special servicer. Build conservatism into DSCR projections.
Branch 3: Bank Balance Sheet
Best for: all property types; relationship-driven; preferred for value-add, lease-up risk, or complex structures.
Key parameters:
- Full or partial recourse common; non-recourse for institutional sponsors
- Floating (SOFR + spread) or short-term fixed (3-5 years with reset)
- More flexible covenant structure; extension options negotiable
- Prepayment: usually step-down (1%/0.5%/0) or negotiable open after year 2
- Cash management: usually lighter than CMBS
- Construction loans: typically bank balance sheet; see Branch 5
Branch 4: Bridge
Best for: value-add properties, transitional properties, lease-up, post-renovation stabilization.
Key parameters:
- Non-recourse with carve-outs standard; recourse may apply to smaller sponsors
- Floating rate (SOFR + spread, typically 300-500 bps); terms 2-3 years + 1-2 extensions
- Future funding facility for renovation/TI draws (holdback structure)
- Rate cap required on SOFR component (typically at strike of 3-4% over loan term)
- Extension conditions: usually DSCR test, minimum occupancy, no material default
- Prepayment: usually open after 6-12 months with exit fee (0.5-1%)
- Lenders: debt funds, mortgage REITs, some banks; pricing varies widely
Branch 5: Construction
Best for: ground-up development; major renovation requiring full gut.
Key parameters:
- Recourse typical during construction; burns off at completion + stabilization
- Floating rate (SOFR + 250-400 bps); 18-36 month term with mini-perm option
- Draws on a schedule tied to construction milestone sign-offs
- Completion guaranty: full or budget-completion guaranty required
- Interest reserve typically funded into the loan
- Lender controls: inspect and approve draws; title continuation required each draw
- Take-out commitment: permanent lender committed before construction loan closes (preferred)
Branch 6: Mezzanine
Best for: filling gap between senior loan and equity; preferred equity is economic equivalent with different legal structure.
Key parameters:
- Subordinate to senior loan; intercreditor agreement controls rights
- Fixed or floating; rates 10-15% (mezz) or 8-12% (preferred equity returns)
- Term matches or is shorter than senior loan
- UCC lien on borrowing entity (mezz); equity ownership pledge (preferred equity)
- Key intercreditor provisions: cure rights, purchase option at senior loan default, transfer restrictions
Input Schema
| Field | Type | Required | Description |
|---|
lender_quote | text/object | yes | Lender's term sheet or quote indication |
loan_type | enum | yes | agency, cmbs, bank, bridge, construction, mezzanine |
deal_config | object | yes | Property type, purchase price, close date, borrower entity, deal strategy |
underwriting_outputs | object | recommended | NOI, DSCR, LTV, debt yield, cap rate from acquisition-underwriting-engine |
capital_stack | object | recommended | Equity/debt/mezz split from capital-stack-optimizer |
hold_period_years | int | yes | Target hold period |
rate_preference | enum | yes | fixed, floating |
recourse_tolerance | enum | yes | non_recourse, carve_outs_only, partial_recourse, full_recourse |
mezz_in_stack | boolean | yes | Whether mezzanine or preferred equity is present |
competing_quotes | list | optional | Additional lender quotes for comparison matrix |
Process
Workflow 1: Lender Quote Parsing
Extract every economic and structural term from the lender's quote. Use this extraction checklist:
Economic Terms:
[ ] Loan amount ($)
[ ] LTV (%)
[ ] Rate type: fixed / floating
[ ] Index: SOFR / Treasury / Fixed
[ ] Spread (bps over index, or all-in fixed rate)
[ ] IO period (months)
[ ] Amortization schedule (years, or IO-only)
[ ] Loan term (years)
[ ] Extension options (count, term, conditions)
[ ] Prepayment: type (defeasance / yield maintenance / step-down / open)
[ ] Prepayment schedule (lockout, step-down %s by year)
[ ] Origination fee (points)
[ ] Application / good faith deposit
[ ] Exit fee (if applicable -- common on bridge)
[ ] Rate lock fee and window
Structural Terms:
[ ] Recourse: non-recourse / partial / full
[ ] Carve-out guaranty: standard vs. expanded
[ ] Springing recourse triggers
[ ] Guaranty burn-off provisions (if any)
[ ] Cash management: hard lockbox / soft lockbox / springing
[ ] Cash sweep DSCR trigger
[ ] Distribution conditions (DSCR / occupancy thresholds)
[ ] Reserves: types (tax, insurance, replacement, TI/LC) and amounts
[ ] Reserve release conditions
[ ] Rate cap requirement (for floating only): strike rate, term, minimum rating
Conditions Precedent:
[ ] Appraisal (lender-ordered, FIRREA-compliant)
[ ] Environmental Phase I (and Phase II if flagged)
[ ] Property condition report (PCR) / engineer's report
[ ] Title insurance (ALTA lender's policy)
[ ] Survey (ALTA/NSPS)
[ ] Borrower entity documents (operating agreement, cert of good standing)
[ ] Financial statements (borrower and guarantor): 2-3 years
[ ] Rent roll (executed leases, not just summary)
[ ] SNDAs from major tenants
[ ] Zoning confirmation
[ ] Insurance certificates (GL, property, flood if applicable)
Output: Parsed term summary in tabular format with any missing or unclear terms flagged for clarification.
Workflow 2: Terms Validation Against Underwriting
Cross-reference parsed terms against the deal model to catch structuring problems before execution.
DSCR Validation:
Step 1: Calculate debt service at quoted rate
If fixed: annual debt service = loan_amount * mortgage_constant(rate, amort)
If IO: annual debt service = loan_amount * rate
If floating: stress test at cap strike rate, not just current SOFR
Step 2: Compute DSCR
DSCR = Stabilized NOI / Annual Debt Service
(Use lender's NOI definition -- some exclude management fee or cap ex)
Step 3: Compare to lender minimum
Agency standard: 1.25x (affordable: 1.20x)
CMBS: 1.25x typical; 1.20x for low-leverage deals
Bank: 1.20-1.30x depending on relationship and property type
Bridge: 1.10-1.20x on as-stabilized pro forma
If DSCR < lender minimum: flag sizing shortfall.
Options: (a) reduce loan amount, (b) negotiate IO period to boost cash coverage,
(c) reduce asking price, (d) improve NOI assumptions.
LTV Validation:
Step 1: Confirm appraised value basis
Purchase price vs. appraised value (use lower of the two -- agency and CMBS standard)
Step 2: Calculate LTV
LTV = Loan Amount / Appraised Value
Step 3: Compare to lender maximum
Agency multifamily: 75% standard, 80% affordable
CMBS: 65-75% depending on property type and market
Bank: 65-75% value-add, 60-65% construction
Bridge: 75-80% of as-is; 65-70% of stabilized
Debt Yield Validation:
Debt Yield = NOI / Loan Amount (not rate-sensitive -- pure coverage measure)
Thresholds (approximate):
Agency: 7.0% minimum
CMBS: 7.5-8.5% depending on property type
Bank: 8.0%+ for non-recourse
Bridge: 6.0-7.0% on as-stabilized basis
Below threshold: reduce loan amount or improve NOI.
Output: Validation table with DSCR, LTV, and debt yield vs. lender minimums. Flag any metric below threshold. If floating, include stressed case at rate cap strike.
Workflow 3: Term Sheet Structure
Draft the formal term sheet. Standard sections by loan type:
===========================================================
FINANCING TERM SHEET (INDICATION)
===========================================================
Date: [date]
Prepared for: [borrower entity]
Prepared by: [lender / broker]
Subject property: [property name, address]
Loan type: [agency / CMBS / bank / bridge / construction / mezz]
Indicative terms -- subject to credit approval and due diligence
===========================================================
SECTION 1: LOAN SUMMARY
Borrower: [legal entity name, state of formation]
Guarantor(s): [name(s) and relationship to borrower]
Property: [address, property type, year built, SF or units]
Loan Amount: $[X] ([X]% LTV based on [appraised value / purchase price])
Loan Purpose: [acquisition / refinance / construction]
Deal Strategy: [stabilized / value-add / development]
SECTION 2: RATE AND ECONOMICS
Rate Type: [Fixed / Floating (SOFR + [X] bps)]
Index Rate: [current SOFR or Treasury, as of date]
Spread: [X] bps
All-In Rate: [X.XX]% (indicative)
Rate Lock: [description of lock option and cost]
Rate Cap: [required / not required]
If required: strike [X]%, term [X] months, minimum rating [A]
SECTION 3: LOAN STRUCTURE
Loan Term: [X] years
Amortization: [X]-year amortization / Interest Only
IO Period: [X] months from closing
Extension Options: [count] x [term] months; conditions: [DSCR test, occupancy test]
Origination Fee: [X]% of loan amount ($[X])
Exit Fee: [X]% (if applicable)
SECTION 4: DEBT SERVICE COVERAGE
Stabilized NOI: $[X]
Annual Debt Service: $[X]
DSCR (stabilized): [X.XX]x (lender minimum: [X.XX]x)
Debt Yield: [X.X]% (lender minimum: [X.X]%)
SECTION 5: PREPAYMENT
Prepayment Type: [defeasance / yield maintenance / step-down / open]
Lockout Period: [X] months from closing
Step-Down Schedule: Year 1: [X]%, Year 2: [X]%, ... Year N: 0%
(or: yield maintenance through [date])
SECTION 6: RECOURSE AND GUARANTY
Recourse: Non-recourse (with standard carve-outs)
[or: partial recourse: [X]% of loan amount]
[or: full recourse during [construction / lease-up period]]
Carve-Out Guaranty: Required. Guarantor(s): [names]
Standard Carve-Outs: (see Section 7)
Springing Recourse: Full recourse upon: [bankruptcy filing / fraud / waste /
misappropriation of rents / prohibited transfer]
Guaranty Burn-Off: [Yes/No]; conditions: [stabilization at [X]% occupancy
for [X] consecutive months]
SECTION 7: BAD-BOY CARVE-OUTS (STANDARD)
Environmental indemnity: unlimited personal liability
Fraud or misrepresentation: full loan amount
Waste or intentional damage: actual damages
Misappropriation of rents, insurance, or condemnation proceeds
Voluntary bankruptcy filing
Transfer in violation of loan documents
Failure to maintain required insurance
SECTION 8: RESERVES
Tax: [X months funded upfront / monthly escrow]
Insurance: [X months funded upfront / monthly escrow]
Replacement: $[X]/unit/year or $[X]/SF/year (funded monthly)
TI/LC: $[X] (if applicable -- commercial properties)
Interest: $[X] funded into loan (construction / bridge)
Seasonality: $[X] (if applicable -- hospitality, multifamily)
SECTION 9: CASH MANAGEMENT
Lockbox Type: [None / Soft / Hard / Springing]
Trigger: Cash sweep activates if DSCR < [X.XX]x for [X] consecutive quarters
Distributions: Permitted if DSCR >= [X.XX]x and no event of default
Cash Sweep: Excess cash [retained in reserve / swept to lender]
Cure: Borrower may cure trigger by: [deposit additional reserve / improve NOI]
SECTION 10: CONDITIONS PRECEDENT
1. Satisfactory appraisal (FIRREA-compliant, lender-ordered)
2. Phase I Environmental Site Assessment (Phase II if required)
3. Property Condition Report (PCR)
4. ALTA Lender's Title Policy
5. ALTA/NSPS Survey
6. Executed rent roll with all leases (for commercial)
7. Tenant SNDAs and estoppels from major tenants
8. Borrower and guarantor financial statements (3 years + interim)
9. Borrower entity documents (operating agreement, formation docs, good standing)
10. Insurance certificates meeting lender requirements
11. Zoning confirmation letter
12. [Additional conditions per lender / loan type]
SECTION 11: CLOSING TIMELINE
Application / Good Faith Deposit: $[X] (due at application)
Processing Period: [X] weeks
Commitment Letter: Week [X] from application
Rate Lock: [X] days; fee: [X] bps
Estimated Closing: [date]
SECTION 12: LENDER FEES AND THIRD-PARTY COSTS (ESTIMATE)
Origination fee: $[X]
Application fee: $[X]
Appraisal: $[X]-$[X]
Environmental (Ph I): $[X]-$[X]
PCR: $[X]-$[X]
Title insurance: $[X] (rate-based)
Survey: $[X]-$[X]
Legal (lender): $[X]-$[X]
Legal (borrower): $[X]-$[X] (estimate, borrower pays own)
Rate cap (floating): $[X] (market-dependent)
Total estimated costs: $[X]-$[X]
===========================================================
This term sheet is non-binding and indicative only.
Subject to credit approval, due diligence, and market conditions.
===========================================================
Output: Completed term sheet draft ready for lender markup.
Workflow 4: Negotiation Points Identification
After parsing the lender quote, score each term for negotiability and priority. See references/negotiation-playbook.md for lender-type-specific playbooks.
Priority Matrix:
| Term | Current Position | Target | Market Precedent | Negotiability | Priority |
|---|---|---|---|---|---|
| Rate / Spread | [as quoted] | [target] | [benchmark] | Low-Med | [1-7] |
| IO Period | [X months] | [X months] | [benchmark] | Medium | [1-7] |
| Prepayment | [type] | [target] | [benchmark] | Medium | [1-7] |
| Carve-out scope | [as quoted] | Standard only | Market standard | Medium-High | [1-7] |
| Extension conditions | [as quoted] | Loosen tests | Market standard | Medium | [1-7] |
| Reserve requirements | [as quoted] | Reduce upfront | [benchmark] | Medium | [1-7] |
| Rate lock window | [X days] | [longer] | 60-90 days common | Medium | [1-7] |
Negotiability scale: Low (lender rarely moves), Medium (room to negotiate with market data),
High (borrower has leverage, lender wants the deal).
Priority: 1 = most important to business plan, 7 = nice-to-have.
Standard negotiation order (negotiate highest priority first; win one before moving to next):
- IO period -- direct cash flow impact; present DSCR analysis showing comfort at amortizing payment
- Prepayment structure -- exit flexibility; request step-down alternative to defeasance if hold is uncertain
- Carve-out scope -- risk management; narrow to market-standard list
- Extension conditions -- downside protection; negotiate DSCR test to as-stabilized, not trailing
- Reserve requirements -- upfront cost; negotiate reduction on well-maintained properties with recent capex
- Rate lock window -- timing risk; negotiate 75-90 days on agency; 60-day minimum
- Guaranty burn-off -- long-term risk mitigation; negotiate achievable occupancy/DSCR thresholds
Output: Negotiation matrix with market context and recommended positions.
Workflow 5: Rate Lock Strategy
Rate lock is an irrevocable commitment. Assess all variables before recommending.
Rate Lock Decision Framework:
Step 1: Rate environment assessment
Rising rates: lock early, minimize extension risk
Falling rates: delay lock, seek float-down provision
Flat/uncertain: standard processing-period lock
Step 2: Closing certainty assessment
High certainty (clean title, no zoning issues, committed equity): lock at application
Medium certainty (minor contingencies): lock at commitment letter
Low certainty (complex entitlements, partner approval needed): delay lock
Step 3: Lock options by loan type
Agency (Freddie/Fannie):
Early rate lock: available at application, costs 10-25 bps
Standard lock: at commitment letter, 30-90 days
Float-down: available on some programs (Freddie SBL): costs 10-15 bps, allows
one-time rate reduction if rates fall 25+ bps before closing
Extension: typically 0.10-0.25% per 30-day extension
CMBS:
Rate lock at application or early processing
Lock windows: 30, 45, 60, 90 days (cost increases with term)
Treasury hedge alternative: protects rate without full lock (used in rate-rising environment)
No float-down on CMBS; lock is absolute
Bank:
Rate set at commitment; short lock window (30-60 days)
Rate reset provisions if closing extends beyond lock
Bridge:
Floating -- rate lock not relevant; rate cap is the protection mechanism
Rate cap: purchase at closing or pre-purchase to hedge cap cost
Rate cap sizing: buy cap for full term (including extensions) to avoid re-purchase risk
Step 4: Lock cost analysis
Lock cost = lock fee (bps) + potential extension cost if closing delays
Example (agency, $10M loan, 60-day lock at 15 bps):
Lock fee: $10,000,000 * 0.0015 = $15,000
If 30-day extension needed (0.15% = 15 bps): additional $15,000
Total lock cost: $15,000-$30,000
Step 5: Rate cap sizing (floating loans)
Cap notional = loan amount
Strike rate: typically index floor + 200-250 bps above current index
Term: match loan term including extensions
Cost: estimated 50-200 bps of notional depending on strike, term, volatility
Lender requirement: typically SOFR cap at or below loan spread + 2-3%
Source: purchase from A-rated counterparty; lender assigns as collateral
Output: Rate lock recommendation with timing, cost, and extension contingency plan.
Workflow 6: Lender Comparison Matrix
When multiple lender quotes are received, produce a normalized side-by-side comparison. See references/market-rate-benchmarks.yaml for current benchmarks.
Lender Comparison Matrix
Property: [name] Loan Type: [type] Date: [date]
| Term | Lender A | Lender B | Lender C | Market Benchmark | Notes |
|---|---|---|---|---|---|
| Loan Amount | $[X] | $[X] | $[X] | -- | |
| LTV | [X]% | [X]% | [X]% | [X]% max | |
| Rate (all-in) | [X.XX]% | [X.XX]% | [X.XX]% | [benchmark] | |
| Spread | [X bps] | [X bps] | [X bps] | [benchmark] | |
| IO Period | [X months] | [X months] | [X months] | [benchmark] | |
| Amortization | [X yr] | [X yr] | [X yr] | | |
| Loan Term | [X yr] | [X yr] | [X yr] | | |
| Extension Options | [X x Y] | [X x Y] | [X x Y] | | |
| Prepayment | [type] | [type] | [type] | | |
| Origination Fee | [X pts] | [X pts] | [X pts] | | |
| Reserves | [description] | [description] | [description] | | |
| Cash Management | [type] | [type] | [type] | | |
| Recourse | [type] | [type] | [type] | | |
| Carve-outs | [standard/expanded] | [standard/expanded] | [standard/expanded] | | |
| Rate Lock | [X days] | [X days] | [X days] | | |
| Processing Time | [X weeks] | [X weeks] | [X weeks] | | |
Annual Debt Service:
Lender A: $[X] (DSCR: [X.XX]x)
Lender B: $[X] (DSCR: [X.XX]x)
Lender C: $[X] (DSCR: [X.XX]x)
Effective Cost of Capital (all-in including fees):
Lender A: [X.XX]%
Lender B: [X.XX]%
Lender C: [X.XX]%
Weighted Score (weight by business plan priority):
Rate/Cost (40%): Lender [A/B/C] wins
Flexibility (30%): Lender [A/B/C] wins
Execution Speed (20%): Lender [A/B/C] wins
Relationship (10%): Lender [A/B/C] wins
RECOMMENDED: Lender [X]
Rationale: [narrative explaining recommendation]
Output: Normalized comparison matrix with weighted recommendation and rationale.
Workflow 7: Red Flag Detection
Screen every lender quote before execution. Automatically flag any of the following:
See references/market-rate-benchmarks.yaml for current benchmarks against which to measure deviations.
Flag 1: Above-Market Spread
Detect: compare quoted spread to benchmark for loan type + LTV tier + property type
Threshold: flag if spread exceeds benchmark by 25+ bps without explanation
Action: request re-quote citing comparable transactions
Flag 2: Expanded Bad-Boy Carve-Outs
Detect: compare carve-out list to standard (see Workflow 3, Section 7)
Common expansions to flag:
- Operating losses triggering recourse (not just fraud)
- Failure to pay taxes triggering recourse (should just be covenant breach)
- Springing recourse at DSCR < 1.10x (operational trigger, not bad-boy)
- Material adverse change clause triggering recourse
- Cross-default with borrower's other properties (should be limited to this property)
Action: negotiate removal or limitation before execution
Flag 3: Cash Sweep Trigger Too Tight
Detect: springing cash sweep at DSCR < 1.20x
Market standard: CMBS sweep typically triggers at DSCR < 1.15x; agency at 1.10x
Risk: DSCR below 1.20x is common on value-add properties; tight trigger eliminates distributions
Action: negotiate trigger to 1.10x or tie to trailing 12-month tested DSCR, not quarterly
Flag 4: Prepayment Exceeding Market
Detect: yield maintenance on a 5-year loan in low-spread environment (expensive at exit)
Compare: defeasance vs. yield maintenance economics at projected exit date
Flag if: exit premium exceeds 2-3 points at projected exit
Action: negotiate step-down alternative; request yield maintenance with defeasance option
Flag 5: Reserve Requirements Above Market
Detect: upfront reserve escrow > 6 months for operating expenses; replacement reserve > $400/unit
Context: recently renovated properties should not carry full replacement reserves
Action: provide evidence of recent capital investment; negotiate waiver or reduction
Flag 6: Missing Rate Cap Requirement (Floating Loans)
Detect: floating rate loan with no rate cap requirement in term sheet
Risk: if not required, lender may add requirement in loan docs; costs 50-200 bps to purchase
Action: confirm rate cap requirement upfront; size and cost the cap before committing
Flag 7: Extension Conditions Commercially Impractical
Detect: extension conditions that require DSCR > 1.25x on current trailing NOI (not pro forma)
Risk: value-add borrower cannot meet trailing DSCR test during renovation
Standard: extension should test as-stabilized DSCR or minimum occupancy
Action: negotiate extension test to minimum occupancy (85-90%) with reasonable DSCR floor
Flag 8: No Transfer Right
Detect: loan documents prohibit any transfer without lender consent (no one-time transfer right)
Risk: eliminates ability to sell without lender payoff (or forces defeasance on CMBS)
Standard: one-time transfer right with assumption fee and substitute guarantor provision
Action: require one-time transfer provision before execution
Flag 9: Floating Rate Without Rate Cap Timing
Detect: rate cap required but no defined deadline for purchase
Risk: lender can impose cap requirement at closing without adequate sourcing time
Action: negotiate rate cap delivery 5-10 business days before closing; source cap in parallel
Output: Red flag report with severity (Critical / Significant / Minor) and recommended action per flag.
Output Format
Present results in this order:
- Quote Summary -- parsed economic and structural terms in table format; missing/unclear items flagged
- Validation Results -- DSCR, LTV, debt yield vs. lender minimums; stressed case if floating
- Term Sheet Draft -- formatted per Workflow 3; ready for lender markup
- Negotiation Priority Matrix -- top 5-7 terms with current position, target, market precedent
- Rate Lock Recommendation -- lock type, timing, cost, contingency
- Red Flags -- any flags from Workflow 7, severity-ranked
- Lender Comparison (if multiple quotes) -- matrix with weighted recommendation
Red Flags and Failure Modes
-
Above-market spread for property quality: spreads > 25 bps over benchmark without structural complexity suggest lender is pricing credit risk they haven't disclosed. Investigate what they know about the property or market that you don't.
-
Bad-boy carve-outs broader than standard: carve-outs tied to operating metrics (DSCR, occupancy) rather than fraud and bad acts convert a non-recourse loan into a recourse loan the moment performance softens. Guarantors must understand full exposure before signing.
-
Cash management triggers too tight: a springing cash sweep at DSCR < 1.20x will eliminate distributions on any value-add deal during renovation. Model the cash sweep impact on equity returns before signing.
-
Prepayment penalties exceeding market: yield maintenance on a 3-year bridge deal or a 5-year bank loan in a low-spread environment can make early exit prohibitively expensive. Model the exit cost at year 2 and year 3 before agreeing to prepayment structure.
-
Reserve requirements above 6 months: lenders sometimes pad reserves on properties they perceive as higher risk. Excess reserves are dead capital -- negotiate release conditions tied to occupancy or DSCR performance.
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Missing rate cap requirement on floating: discovering a mandatory rate cap requirement at closing, without time to source it, can delay closing or force purchase at unfavorable market prices. Source the cap in parallel with loan processing.
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Extension conditions commercially impractical: extension conditions that require trailing DSCR > 1.25x on a value-add property during renovation will not be met. Model extension conditions against the business plan's projected stabilization timeline before committing.
Chain Notes
- Upstream: loan-sizing-engine provides sizing output and DSCR/LTV constraints
- Upstream: capital-stack-optimizer provides approved debt tranche parameters and mezz structure
- Upstream: acquisition-underwriting-engine provides NOI, cap rate, and return expectations
- Downstream: executed term sheet feeds loan-document-reviewer for full document review
- Downstream: rate lock decision feeds closing-checklist-tracker with lock expiry deadline
- Parallel: if floating rate, rate-cap sourcing begins in parallel with loan processing
- Downstream: reserve structure and covenant package feed debt-covenant-monitor for ongoing asset management
Computational Tools
This skill can use the following scripts for precise calculations:
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scripts/calculators/debt_sizing.py -- sizes loan against DSCR, LTV, and debt yield constraints with rate sensitivity grid (validates term sheet sizing)
python3 scripts/calculators/debt_sizing.py --json '{"noi": 1500000, "property_value": 20000000, "target_dscr": 1.25, "target_ltv": 0.65, "target_debt_yield": 0.09, "rate": 0.065, "amortization_years": 30, "io_years": 2}'
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scripts/calculators/covenant_tester.py -- tests DSCR, LTV, and debt yield covenants against projections (validates terms against business plan)
python3 scripts/calculators/covenant_tester.py --json '{"noi_by_year": [1200000, 1250000, 1300000], "loan_amount": 10000000, "rate": 0.065, "amortization_years": 30, "io_years": 2, "dscr_covenant": 1.25, "ltv_covenant": 0.75}'
