Commercial Real Estate

Commercial Real Estate Capital Raising Methodology

Table Of Contents

1. Introduction And Context
2. Scope And Operating Model
3. Standard Operating Procedure: Five Step Close
4. Underwriting Detail And Materials
5. Capital Stack Overview
6. Gap Financing: Purpose, Controls, And Execution
7. Construction To Permanent: Mechanics And Conversion Tests
8. Facility Mechanics And Cash Management
9. Distribution Process And Bankability Criteria
10. Fees And Retainer Coverage
11. Client Benefits
12. FAQ
13. Glossary

Introduction And Context

Sponsors frequently face timing gaps between site control, permits, and committed funding. Lenders require completed diligence, detailed budgets, and credible leasing plans. Equity is often short at the moment a term sheet is available. Construction escalations and interest rate volatility increase uncertainty. Financely addresses these issues by sequencing work in a controlled manner, producing decision grade materials, and placing capital with regulated lenders and professional investors.

Scope And Operating Model

Coverage includes acquisition and bridge loans, senior construction financing, construction to permanent facilities, unitranche structures, mezzanine loans, preferred equity, joint venture equity, CPACE where permitted, and rescue capital. Financely acts as advisor and arranger. Borrowing entities are project SPVs or holdco structures with non recourse carve outs. Cash control is implemented through lockbox, springing cash sweep, and reserves. All work is coordinated through the client portal with a single record of decisions.

Standard Operating Procedure: Five Step Close

1. Engagement And Retainer: mandate executed, retainer received, data room checklist released, timetable agreed.
2. Underwriting: KYC and sanctions screening, sponsor and project due diligence, budget and schedule validation, revenue and expense underwriting, capital stack mapping, draft term sheet architecture.
3. Term Sheet: structure and pricing ranges, LTC and LTV targets, DSCR and debt yield thresholds, covenants and reserves, conditions precedent, intercreditor and control framework.
4. Allocation And Documents: lender or investor allocation, draft loan and equity documents circulated, conditions precedent satisfied, funds flow confirmed.
5. Closing And Funding: loan documents executed, equity and gap capital funded, hedges in place where required, initial draw and post closing reporting initiated.

Underwriting Detail And Materials

Underwriting produces a consistent file. Required components include sponsor track record, organizational chart, experience with asset type and geography, purchase and sale agreement or land control, zoning and permits, environmental and geotechnical reports, survey and title, budget with contingencies, guaranteed maximum price contract where applicable, schedule with float analysis, leasing plan and pipeline, rent roll and estoppels for income properties, market study, operating statements, historical collections, pro forma with debt service and exit tests, appraisal instructions, and legal entity documents. Third party specialists such as quantity surveyors, construction monitors, and environmental consultants are engaged where necessary.

Capital Stack Overview

• Senior Mortgage Or Bridge Loan. First lien financing for acquisition, lease up, or repositioning. Availability sized to LTC, LTV, DSCR, and debt yield.
• Unitranche. Single set of documents with A and B tranche economics under an agreement among lenders. Useful when speed and coordination are priorities.
• Mezzanine. Pledge of equity interests in the borrowing entity. Intercreditor agreement sets standstill, cure rights, and enforcement protocol.
• Preferred Equity. Partnership style instrument with fixed distributions, redemption features, and negotiated control rights. Ranks senior to common equity.
• Joint Venture Equity. Promote structure with hurdle rates and capital call mechanics. Appropriate for development and value add programs.
• CPACE Where Permitted. Long tenor assessment for energy and resiliency improvements. Intercreditor alignment is required.

Gap Financing: Purpose, Controls, And Execution

Gap financing addresses equity shortfalls, contingency overruns, and timing differences between requisitions and reimbursements. The objective is continuity of project execution while protecting senior lender position and payment discipline.

Sources. Preferred equity at the project SPV or holdco, mezzanine debt with equity pledges, bridge loans against reimbursable costs, sponsor backstop facilities, and limited seller financing where permitted. For income assets, a temporary cash sweep can support a short tenor bridge.

Control Package. Subordination or intercreditor agreement, blocked accounts, hard cost and soft cost reserves, interest reserve sizing, cost to complete tests, independent monitor reports, and step in rights for investors when milestones are missed.

Execution Path. Quantify the shortfall and duration. Map sources and uses through completion or stabilization. Issue a Gap Term Sheet with amount, tenor, pricing, covenants, and reporting. Obtain indications from targeted investors or lenders. Settle intercreditor terms with the senior agent. Execute documents, fund to escrow, and release against monitor approved draws. Repayment is sourced from take out financing, sales proceeds, or cash sweep triggers.

Construction To Permanent: Mechanics And Conversion Tests

Construction to permanent facilities combine a construction tranche with an automatic or conditional conversion to a permanent loan. Core elements include interest reserve sizing, hedging strategy for floating rate exposure, draw mechanics with inspector sign off, retainage and lien waivers, budget contingency governance, and title updates at each draw. Conversion requires substantial completion certificates, minimum occupancy or pre leasing thresholds, net operating income coverage, as built surveys, and absence of defaults. Permanent loan terms specify DSCR, amortization, cash management, and release provisions consistent with business plan and exit strategy.

Facility Mechanics And Cash Management

• Cash Control. Hard lockbox with springing cash sweep to reserves when tests are not met. Waterfall defines application to taxes, insurance, operations, debt service, reserves, and distributions.
• Reserves. Interest, real estate taxes, insurance, replacement, tenant improvements, and leasing commissions sized to plan and stress scenarios.
• Collateral Package. Mortgage or deed of trust, assignment of leases and rents, UCC filings, guaranties with limited recourse carve outs, and completion guaranties for construction.
• Hedging. Interest rate caps or swaps sized to notional and tenor. Collateral assignment and minimum rating of hedge counterparty.
• Reporting. Monthly draw package, quarterly financials, rent roll, leasing updates, and annual budgets. Inspector and appraiser reports are shared as required.

Distribution Process And Bankability Criteria

Distribution is targeted to bank lenders, debt funds, life companies, CMBS desks for conduit or single asset single borrower execution, and equity partners including family offices and real estate private equity. Indications are collected in a comparable format that captures rates, fees, covenants, reserves, prepayment, and conditions precedent. A transaction is bankable when sponsor capacity is evidenced, site control and entitlements are clear, cost plan and schedule are validated, leasing and market demand are credible, and documents reflect the economics without ambiguity.

Fees And Retainer Coverage

Retainer. Funds underwriting, materials, investor and lender engagement, data room build, timetable control, and decision logs. Third Party Costs. Legal, diligence, appraisal, monitoring, title, and survey paid at cost against estimates. Success Fee. Payable at funding per the mandate. Retainers are not refundable once underwriting begins.

Client Benefits

FAQ

Can senior lenders accept limited equity and still close
Possible where DSCR, debt yield, and cost to complete tests are satisfied and where a documented gap solution sits behind the senior with proper controls.

How is mezzanine aligned with the senior lender
Through an intercreditor agreement with cure rights, notice periods, standstill, and transfer restrictions. Cash management and reserve provisions remain senior controlled.

When is unitranche preferable to senior plus mezzanine
When speed, single documentation, and one credit decision are priorities. The agreement among lenders allocates economics between the A and B tranches.

What causes conversion failure on construction to permanent
Failure to achieve occupancy or NOI thresholds, unresolved liens, incomplete punch list, or covenant defaults. These risks are managed by sizing reserves and by early leasing interventions.

Can CPACE sit with a mortgage
Yes where permitted by statute and lender policy. Intercreditor alignment is required and often documented before closing.

What is the practical ceiling on leverage
Leverage is set by DSCR and debt yield rather than a single headline ratio. Market and asset quality determine the workable range.

Do you guarantee funding
No. Outcomes depend on sponsor capability, asset quality, documentation, and market appetite. Mandates are accepted where the file can be defended in front of decision makers.

Glossary

Agent. Lender acting on behalf of the syndicate for administration and decisions within the loan documents.

Appraisal. Independent opinion of value used for LTV sizing and collateral monitoring.

Borrowing Base. Formula for availability under a revolving or construction facility based on approved costs or eligible assets.

CapEx Reserve. Funds set aside for building systems and agreed improvements.

Cash Sweep. Redirection of excess cash to debt service or reserves when tests are not met.

Completion Guaranty. Sponsor obligation to fund shortfalls to complete construction.

CPACE. Property assessed clean energy financing for eligible improvements, repaid via tax assessment.

Debt Yield. Net operating income divided by loan amount. A sizing and exit test.

DSCR. Debt service coverage ratio calculated from stabilized or in place NOI over debt service.

GMP Contract. Guaranteed maximum price contract with allowances and contingency governance.

Intercreditor. Agreement defining ranking, remedies, cure rights, and cash control among finance parties.

LTC. Loan to cost ratio used for construction sizing.

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

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

Non Recourse Carve Outs. Sponsor liabilities for fraud, misappropriation, or other specified acts.

Prepayment. Make whole, yield maintenance, or step down schedule defining cost of early repayment.

Preferred Equity. Equity class with priority distributions, redemption features, and negotiated controls.

Rent Roll. Schedule of tenants, rents, expirations, and credit support used for underwriting.

Springing Cash Management. Hard lockbox or sweep that activates when tests are breached.

Stabilization. Occupancy and NOI levels required for take out or conversion to permanent.

Term Sheet. Non binding summary of structure, pricing, covenants, reserves, and conditions precedent.

Unitranche. Single credit agreement with internal allocation across senior and junior economics.

Financely is a capital advisory. The firm is not a bank. All outcomes are subject to KYC and AML, credit approval, documentation, and jurisdictional requirements. Work proceeds on a retained basis through the client portal.