Commercial Real Estate

Commercial Real Estate Capital Raising Methodology

A controlled, chronological process for underwriting and placing capital for qualified sponsors and operating partners.

Context

Commercial Real Estate capital raises fail when site control, permits, budgets, and commitments are out of sequence. Lenders require decision-grade diligence, a credible budget and schedule, and a leasing or stabilization plan that survives stress. Equity is often short right when a term sheet shows up. Volatility in rates and construction costs raises the bar. This methodology forces early clarity on the file, the controls, and the funds flow.

Scope And Operating Model

Standard Operating Procedure: Five-Step Close

1. Mandate. Engagement executed, retainer received, data room checklist and timetable issued.
2. Underwriting. KYC and sanctions screening, sponsor review, project diligence, budget and schedule validation, model and stress tests, draft capital stack.
3. Term Sheet. Pricing ranges, LTC and LTV targets, DSCR and debt yield tests, covenants, reserves, CPs, and the control package.
4. Allocation And Documents. Targeted outreach, indications on a comparable template, allocations, document negotiation, CP tracker locked, funds flow confirmed.
5. Closing. Documents executed, equity and debt funded, escrow and reserves established, initial draw released, post-close reporting begins.

Underwriting File

Underwriting produces a consistent package that supports credit and investment approval. Typical requirements include sponsor track record and capacity, entity and ownership chart, site control (purchase contract, option, or lease), zoning and permits, environmental and geotechnical work, title and survey, budget with contingencies, GMP contract where applicable, schedule with critical path, leasing plan and pipeline, rent roll and estoppels for in-place income, market study, operating statements, pro forma with debt service and exit tests, and borrower and sponsor documentation required for closing.

Independent specialists are used where needed, such as construction monitors, quantity surveyors, environmental consultants, and appraisers. Their role is to validate cost-to-complete, draw eligibility, and collateral assumptions.

Capital Stack

• Senior Mortgage Or Bridge. First lien financing sized to LTC, LTV, DSCR, and debt yield with reserve requirements.
• Construction Financing. Draw-based senior facility with monitor sign-off, retainage controls, and completion tests.
• Unitranche. Single documentation set for speed and coordination, internal economics allocation among lenders.
• Mezzanine. Equity pledge structure behind senior, governed by an intercreditor agreement.
• Preferred Equity. Priority distributions with negotiated controls and redemption mechanics, ranking ahead of common equity.
• Joint Venture Equity. Promote and hurdle structure with governance, reporting, and capital call rules.
• CPACE Where Permitted. Long-tenor assessment funding for eligible improvements, subject to lender policy and intercreditor alignment.

Gap Financing Controls

Gap financing is used for equity shortfalls, contingency overruns, and timing mismatches between requisitions and reimbursements. The objective is continuity of execution without weakening senior lender protections.

Construction To Permanent

Construction-to-permanent facilities combine a construction tranche with conversion to a permanent loan on defined conditions. Core mechanics typically include draw approvals with monitor sign-off, lien waivers and title updates, contingency governance, and clear change-order rules. Conversion tests usually require substantial completion evidence, minimum occupancy or pre-leasing thresholds, net operating income coverage, and no continuing defaults.

Facility Mechanics And Cash Management

• Cash Control. Lockbox or controlled account structure, with sweeps to reserves and debt service when tests are not met.
• Reserves. Interest, taxes, insurance, replacement, tenant improvements, leasing commissions, and capex reserves sized to the plan and stress scenarios.
• Collateral. Mortgage or deed of trust, assignment of leases and rents, UCC filings, and guaranties including completion support where relevant.
• Hedging. Caps or swaps where required by lender policy, aligned to notional, tenor, and counterparty standards.
• Reporting. Draw package cadence, budget-to-actual tracking, rent roll and leasing updates, and periodic financial reporting as required by the facility.

Distribution And Bankability

Distribution is targeted to bank lenders, debt funds, life companies, CMBS desks where applicable, and equity partners such as real estate private equity, family offices, and operating partners. Indications are collected on a comparable template capturing pricing, fees, reserves, covenants, prepayment, CPs, and required controls. A transaction is considered bankable when sponsor capacity is evidenced, site control and entitlements are clear, the budget and schedule are validated, leasing demand is credible, and documents reflect the economics with no ambiguity.

Fees

Retainers fund underwriting, materials, lender and investor engagement, data room build, timetable control, and the decision log. Third-party costs (legal, diligence, appraisal, monitoring, title, survey) are paid at cost. Success fees, if any, are payable at funding as defined in the mandate.

FAQ

Can a sponsor close with a smaller equity check?

Sometimes. It depends on DSCR, debt yield, cost-to-complete, and whether any gap solution is properly subordinated and controlled. The capital stack must remain enforceable, with clear waterfalls, reserves, and reporting.

How is mezzanine aligned with the senior lender?

Through an intercreditor agreement that defines cure rights, notice periods, standstill, payment blockers, transfer rules, and enforcement protocol. Senior cash management and reserve provisions remain senior-controlled.

When is unitranche preferable to senior plus mezzanine?

When speed, one documentation set, and a single credit decision are priorities. Senior plus mezzanine can be preferable when pricing tension is needed and the file supports multiple parties.

What causes construction-to-permanent conversion failure?

Failure to meet occupancy or net operating income thresholds, unresolved liens, incomplete completion evidence, budget overruns without approved sources, or covenant defaults. These risks are managed by governance, monitoring, reserves, and early leasing execution.

Can CPACE sit with a mortgage?

Yes where allowed by statute and lender policy, but intercreditor alignment is usually required before closing.

Do you guarantee funding?

No. Outcomes depend on sponsor capability, asset quality, documentation, and market appetite. We operate on a best-efforts basis and proceed where a defendable file can be produced.

Glossary

Cost To Complete Test. Calculation confirming committed sources cover remaining costs, reserves, and contingencies.

Debt Yield. Net operating income divided by loan amount, used as a sizing and exit test.

DSCR. Debt service coverage ratio measured against underwritten net operating income.

Intercreditor Agreement. Contract governing ranking, remedies, standstill, and cash control across the stack.

LTC. Loan-to-cost ratio used for construction sizing.

LTV. Loan-to-value ratio used for bridge or permanent sizing.

Monitor. Independent party (engineer or quantity surveyor) verifying progress and approving draws.

Lockbox. Controlled cash collection account used to enforce the payment waterfall.

Disclaimer: This methodology is provided for general information only and does not constitute legal, tax, investment, or regulatory advice. Financely is not a bank, not a broker-dealer, and not a direct lender. All services are performed on a best-efforts basis as an arranger and advisor through third-party capital providers and, where required, regulated execution partners. No financing outcome is guaranteed. Any terms are subject to diligence, lender and investor approvals, definitive documentation, and compliance screening, including KYC, AML, and sanctions.