CLIENT EDUCATION Commercial Key Concepts
Commercial real estate finance, like any industry, has a language of its own. The last section of this eBook has a complete glossary of commercial mortgage terms for your reference during your loan process. We do however think it is important to further explain a few key concepts that as a landlord or investor you should understand as they will affect either your qualification or your resulting loan terms. Having a working knowledge of the below concepts will help facilitate a productive discussion and comparison during the LOI (Letter of Interest) stage with HarborWest. Each of the key concepts below are common discussion topics that are addressed on a Lender’s term sheet.
An amortization period is essentially the length of time the mortgage payments are spread to calculate monthly payment. A fully amortized loan would be paid off at the end of this period, whereas a partially amortized loan would have a remainder or balloon payment at the end. Amortization period should not be confused with the term (or maturity as its commonly known). For example, a commercial mortgage can commonly have a 25-year amortization but a 10-year loan term or maturity. This means that the payments for the mortgage will be spread over 25-years as if the loan were to be paid down to zero at the end of that period, but the actual loan would be called “due and payable” at the end of 10 years. Since the 25-year amortization period was not lived out, there is a remainder or balloon payment due to the lender.
Most often, multifamily properties will have a 30-year amortization and core commercial properties, or owner-user will have a 25-year amortization (30-years on core commercial can be negotiated for stronger deals). It’s always more attractive to lenders to have a lower amortization, as the loan would be paid down quicker and leave more equity in the property – which is important to lenders when evaluating default risk. A lower amortization can sometimes help negotiate lower interest rates or additional perks. However, reducing the amortization period (whether lender determined based on comfort level, or borrower requested for a better deal) creates a higher mortgage payment. Since maximum loan amounts (LTV) is cash flow determined, this higher payment would negatively impact maximum loan amount qualification if the property is “cash flow restricted”.
Fixed Rate Period
This refers to the period of the loan that the interest rate is fixed. Most commercial mortgages are typically “hybrid” loans where the loan is fixed for only a portion of the loan term. For example, on a 30-year amortization & term for a multifamily bank loan, the rate may only be fixed for the first part of that term. Most commonly, those options are 5, 7 and 10-year fixed rate periods. The longer the rate is fixed, the higher the interest rate will tend to be. In rising interest rate environments, lenders are less inclined to offer longer fixed periods as they will want to recapture higher future interest rates when the market rises. Conversely, in a declining interest rate environment – lenders will often offer discounts to push borrowers to longer fixed period programs, as their profit margin is highest at this point.
There are indeed programs with longer fixed period than 10-years (HarborWest can offer up to a 30-year fixed program for select multifamily properties), and there are also programs with lower than 5-years fixed (for example, 1-year fixed or even quarterly adjustable / not fixed rates). These types of loans are to be utilized when you either (1) need the lowest possible interest rate in order to maximize tight loan proceeds and increase LTV, or (2) when the property is not stabilized and there needs to be rehab completed with a plan to refinance. In this scenario, you’ll want a lower prepayment penalty which comes with lower fixed rate periods, or it may be a rehab project with a shorter “bullet” or loan term (say 12-month project), so the rate will float or have a very limited fixed period.
The interest rate of the mortgage will usually be the most discussed loan term during your process. While the other loan terms in this chapter can be just as important, the cost of the mortgage of course is the primary factor in this entire process. If the cost of obtaining the debt is too high to justify, the remainder of the terms are unnecessary to discuss. Interest rates can be fixed, adjustable, or a “hybrid” where the rate is fixed for a portion of the term and adjustable for the remainder. Interest rates in commercial real estate can range from the 2.50% range for larger multifamily properties in primary markets to 14.00% for raw land debt with private lenders. Obviously, that range is extremely large - but the key concept here is that the interest rate will correlate to the level of risk to the lender. Rate covers risk. Commercial loan requests that are strong (stabilized, preferred geographic area, low LTV, strong leases and historical performance, etc.) will carry lower risk of default and earn a lower interest rate. Conversely, high risk loan requests require a higher rate in order to justify the lender making an offer. Lenders will usually determine interest rate by taking an index rate (example: LIBOR, 10-Year Treasury Rate, Prime Rate) that fluctuates with the market, and adding a “Margin” which is essentially their determination of risk and profit margin.
Within this general parameter of risk vs. rate, negotiated loan terms can also affect the final interest rate. For example, a base rate can be established by a lender for a commercial loan request but have “add-on” options if the borrower elects to have a shorter prepayment penalty, non-recourse vs. recourse, or an interest-only payment period during the loan as a few of the most common examples. Investors can also earn rate discounts from lenders most typically for accepting a lower LTV maximum, sponsor deposits (banking relationship), or an adjustable rate vs. a fixed rate. Fixed interest rates are also usually higher the longer you fix the rate - so a 10-year fixed rate is always going to be higher than a 5-year fixed rate, and you will need to decide if the difference in payment is worth the additional protection period.
In advanced situations, some lenders can also offer interest rates determined by a “SWAP”. An interest rate swap is a derivative contract whereby two parties (counterparties) agree to exchange one stream of interest payments for another, based on a specified rate index and principal amount. In the world of real estate lending, the most common type of interest rate swap is a fixed for floating exchange. In this scenario, one party exchanges a fixed stream of interest rate payments for a floating rate stream of payments. Both borrowers and debt issuers (lenders) have the ability to capitalize on interest rate movements by entering into derivative contracts called an Interest Rate Swaps. By doing so, either party can either: (1) obtain protection in a rising rate environment; or (2) obtain lower payments in a falling rate environment. However, both parties can’t be right. Interest Rate Swaps are a zero-sum game, meaning one party is going to “win” and the other is going to “lose” depending on which way rates move (source: Property Metrics).
Our HarborWest team can help negotiate the lowest available market rates for you by providing access to the most competitive lenders and using our relationships with these lenders to negotiate offered rates. We will also provide an effective rate comparison analysis between loan offers, and available options for rate discounts should they be available.
Once the basis for the final interest rate has been established prior to accepting a loan offer from one of HarborWests’ lenders, the next consideration is a rate lock. Every lender works differently in this aspect. Most lenders will have the index rate and margin to the rate (collectively the effective rate) determined upfront. However, the index rate used (LIBOR, 10-Year Treasury, etc.) will fluctuate daily with the market. Additionally, a lender’s margin may also increase if the level of risk determined during underwriting ends up being evaluated to be higher than when the loan request was first reviewed. Not all lenders offer rate locks on their loan programs. Lenders that do offer rate locks typically will commit to a 60-day rate lock, but sometimes can be negotiated to 90 days if appropriate. The typical deposit for a rate lock is a 1.00% fee upfront (so that would be a $50,000 deposit provided to the lender on a rate locked $5,000,000 financing).
Reviewing the lender’s particular rate lock policy is crucial before acceptance. The general sentiment for most rate locks is that neither party can benefit from an increase or decrease in rates. Should rates go up during loan processing, the lender does not get the benefit of a higher yield, and conversely if rates should decline the borrower does not pick up the savings. The second notion addresses cancellation: should the lender not approve the loan for any reason, the borrower is due back their full deposit. If the borrower cancels the loan request mid-processing, the lender is able to keep the deposit. Within these general parameters, there is an enormous amount of gray area and interpretation. Be sure to discuss benefits and risks of rate lock policy with HarborWest during the loan origination process.
This is probably the most common commercial mortgage term you will encounter. Very simply it is the percentage of debt compared to the overall value of the property. It is also the inverse of the equity percentage in the property. For example, a $6,000,000 loan amount on a $10,000,000 property value would be a 60% LTV. Inversely, that would equate to a 40% equity or down payment of $4,000,000 – to get to a 100% consideration of combined debt & equity. Most commercial mortgage programs will go as high as 75% LTV. However, some multifamily programs for top-tier requests can go up to 80% LTV and owner-user business real estate loans can go as high as 90% LTV with government financing.
As we always mention, rate and equity cover risk. The first limit to LTV is comfort level by the lender. If a lender is less comfortable with a property, they will require more equity in the property to create a larger “buffer” in the event of potential foreclosure. So even if the lender’s program limit may be higher, the maximum LTV may be reduced arbitrarily based on how they determine deal risk. The second limit to LTV is the cash flow of the property. Most commercial mortgage programs will analyze cash flow ratios (see DSCR and DY described below) to calculate the maximum loan amount they will lend. Depending on how conservative or lenient the lender is on the property and requirements, one lender to another will have different maximum loan amounts quoted to the borrower. The “Value” component to this is usually based on the appraisal report conducted assuming the lender agrees with the valuation. However, the lender can adjust the appraisal if they see fit to conclude a value that they deem more accurate. Additionally, if the request is on a purchase transaction – the lender will consider the lower of the purchase price or appraised value and limit LTV based upon that lower figure.
Another key point related to this concept is Loan-to-Cost (LTC). LTC is an additional qualification standard that is considered when the property is a new construction build or has undergone major renovation in the last 24 months. Lenders will have different requirements, but typically the highest LTC available is 85%. For example, let’s say on a $10,000,000 valued property -- based on LTV a lender is willing to do 70% or $7,000,000 on the loan amount. However, the borrower purchased the property 6 months ago for $4,000,000 and put $2,000,000 worth of rehabilitation into the property (for a total Cost consideration of $600,000 even though the appraisal came in at $10,000,000). In this case, most lenders would then factor in their LTC requirements – which at 85%, would be a maximum $5,100,000 loan. Much lower than the $7,000,000 loan offer if the LTC wasn’t considered. Usually this is a matter of seasoning and will not be considered after 24 months of ownership.
Loan-to-Value (LTV) = Loan Amount / Property Value
Recourse vs. Non-Recourse
Recourse refers to personal guarantee (PG) of the commercial loan. Full recourse loans mean that the principal owners of the property are required to sign and personally guarantee the commercial mortgage. Should the property result in foreclosure and there be a deficit on the sale, the lender would have recourse to pursue the signers to recoup their losses. Full recourse is the default structure for most commercial loans, and on all owner-user business real estate loans. However, less demanding requirements can be considered on select investment properties. Some lenders offer partial recourse (say 25% or 50%) meaning their recourse in the event of foreclosure deficiency would be limited to that amount. Select lenders can also offer non-recourse options to reduce personal liability and limit mortgage liability to only the entity owning the property. This can be very attractive to all investors, but especially those with large personal assets to protect, or a risky project that the investor knows has a chance of failing. Many larger deals can also be syndications where the buyer pools investor funds in order to purchase a commercial property. Those syndicated investors are very unlikely to be willing to personally guarantee a loan especially when they only own a small fraction of the investment and will only accept non-recourse loans as a condition to investing in the pool.
However, even on non-recourse commercial loans, there always still needs to be a “sponsor” – someone to sign for the entity and also for what are commonly referred to as “bad boy carve-outs”. These are exceptions to the non-recourse clause that would trigger recourse liability on that sponsor. Most of the time this includes and is limited to default caused by fraudulent or criminal activity. That sponsor also needs to meet basic financial requirements of net worth and liquidity. Basically, there needs to be a well-healed signor behind every deal, even large syndications. Usually, the rule of thumb on full recourse loans is that anyone with 20% or more ownership or anyone that has a management / decision making role in the entity will provide personal financials and sign recourse as a sponsor. Most of the time the availability of non-recourse loans depends on the equity in the commercial property. The idea being that if there is going to be limited or no recourse available from the borrowers, the lender needs to base their comfort level on the property as a stand-alone. They need to feel good that there is enough equity that they will never need to pursue any sponsors in the event of default. So most non-recourse loans have an LTV limitation that hovers around the 50-55% LTV range.
A few preferred lenders can negotiate non-recourse status on higher leverage requests for a small addition to the rate or for a very attractive property. Some lenders in fact only offer non-recourse financing because their loans are setup to be securitized and sold. So the property needs to stand on its own as an investment regardless of borrower relationship or strength. These defaulted non-recourse loans are offered by CMBS lenders and Agency lenders, while non-recourse is a negotiation for the Banks, Life Companies, Debt Funds and Private Lenders.
Debt Service Coverage Ratio (DSCR)
DSCR is probably the primary cash flow metric used by commercial lenders to determine eligible loan amount on a commercial request. The DSCR is calculated by dividing the NOI (net operating income) of a property, by the ADS (annual debt service). The NOI of a property can be different from lender to lender, depending on their underwriting standards and also any exceptions they are able to make – the higher the NOI, the higher loan amount a property will qualify for.
For example, for a self-managed property in a top market where the appraiser notes a 3% average vacancy – one lender might underwrite a 3% vacancy expense and 0% management expense, while a second might have a 5% vacancy factor and 5% underwritten management fee (in case they ever had to foreclose and implement a manager). The latter scenario would result in higher expenses and thus a lower net operating income (NOI). The annual debt service (ADS) is simply the annual principal & interest mortgage payment total, based on a particular loan amount, amortization and fixed interest rate. So in theory, the lower the interest rate or longer the amortization – the lower the ADS and higher the loan amount qualification. So if the NOI was $400,000 per year, and the ADS for the loan amount requested calculated to exactly $400,000 – the DSCR would be 1.0 precisely.
Most DSCR requirements will be quoted as (1.15x, 1.25x, 1.30x, etc.). Meaning for example, if a lender has a DSCR requirement of 1.25x – they are requiring that the NOI be 25% higher than the annual debt service (ADS) at minimum, to determine the amount they will lend. Once you understand how the DSCR, NOI and ADS work together – you can always use two in order to calculate the third.
Debt Service Coverage Ratio (DSCR) = Net Operating Income (NOI) / Annual Debt Service
Debt Yield Ratio (DY)
The debt yield (DY) ratio is the second most used calculation used by commercial lenders to determine qualified loan amount. The debt yield is simply the net operating income (NOI) divided by the Loan Amount (LA).
For example, a property with an NOI of $550,000 and a loan request of $8,000,000 – would be a DY ratio of 6.87%. This means that the lender would have a 6.87% cash-on-cash return on its money if they had to foreclose on the property day one. So if a lender has a debt yield requirement of 8.00% on all of their transactions, the NOI for this particular property would be used in an inverse calculation to determine the qualified loan amount. Based on a $550,000 NOI and an 8.00% debt yield requirement, the maximum loan amount in this case would be $6,875,000 ($1,125,000 lower than the borrower’s initial loan request of $8,000,000). So working with lenders that have a lower debt yield requirement will maximize loan proceeds for commercial real estate investors.
Debt Yield Ratio (DY) % = (Net Operating Income (NOI) / Loan Amount) x 100
One of the most important considerations in commercial real estate financing is also one of the most overlooked, the loan prepayment penalty. Most commercial lenders are going to include a prepayment penalty clause in the loan to cover themselves should the borrower request to pay off the loan before it is due. Lenders typically require this because prepayment interrupts their business plans that have assumed the interest income generated from the loan across the entire term and might reduce their yield if they are forced to reinvest loans at a prevailing lower rate. Commercial loans can range from having no penalty (which can be negotiated by HarborWest) to lock-out loans which cannot be paid off at all. However, the three most common structures of prepayment penalty are step-down, yield maintenance and defeasance.
Step Down Prepay - A declining balance is probably the most favorable prepayment structure to borrowers. The borrower is responsible for paying a flat percentage fee based off the loan amount should they pay off the balance early, and that fee declines as time goes on. On a hybrid adjustable loan, the fee period will typically match the fixed rate period, but the most competitive lenders will offer shorter periods or reduced fees. Step down penalties are most commonly found with lenders where the loan is held on their own balance sheets. An example of this might be a $3,000,000 loan on a 5-year fixed program with a “5-4-3-2-1-0%” prepay. This means that should the loan be repaid in the first year of its life, there would be a 5% penalty in order to be allowed to do so. In this example, that penalty would be $3,000,000 x 5% = $150,000. If the repayment was in the second year of the loan at 4%, that penalty would drop to $120,000. And so on, until after the 5th year when the penalty expires and there is none. At times it is negotiable to have an “annual allowance” where you can pay down a percentage of the loan balance (usually 20%) without triggering the penalty.
Yield Maintenance - This structure essentially requires the borrower to pay a fee equal to the difference between the amount of interest that would be earned on the loan if it were carried throughout the entire term and the amount of interest that would be earned if the lender reinvested the borrower's prepaid principal in treasury securities of the same term. Typically, the yield maintenance penalty is calculated by taking the present value of remaining payments multiplied by the difference between the interest rate on the loan and a pre-specified index rate. If current market rates were higher than the loan rate, there would be no calculated penalty but still be subject to a minimum fee which is typically between 1% and 3%. Yield maintenance calculations can vary sometimes between lenders, so it’s important to review specific language and implications with HarborWest before accepting any loan offer. Our team can provide you with an overview and example upon request, but in general the earlier in the term the loan is repaid the higher the penalty will be so this prepay structure is best for a long-term hold. Additionally, it is less preferable in a declining interest rate environment. Should prevailing market rates be lower at the time of refinance than what the lender is currently earning, that differential loss will be considered and be on the shoulders of the borrower. Conversely, in a rising interest rate environment, the lender would benefit from recouping their money and lending it out at a higher rate - so the prepayment fee to the borrower would be smaller.
Defeasance - This clause is typically seen exclusively in CMBS lending and requires the borrower to provide treasury securities equal to the value of the subject property to the lender. Whereas yield maintenance is the prepayment of the loan, defeasance is actually a substitution of collateral. The defeasance process involves a variety of different parties and is typically very expensive to commence. The original collateral and projected cash flows are substituted by the borrower with a portfolio of treasury notes designed to generate cash flows that match the loan obligations. A “successor borrower” will take the place of the original borrower, and the lien on the original borrower’s property is released. The successor borrower will make the ongoing debt service payments. The protection that defeasance provides bondholders is necessary to preserve demand and is one of the reasons that CMBS can enjoy the term and pricing advantages that it does. Defeasance is extremely involved and expensive, so clients should be very confident that the commercial property will be a long-term hold and that they have no plans to sell or refinance the property during the life of the loan.
Within these three common structures, it’s also important to note any type of lockout period. A lockout is an absolute restriction on borrower prepayment. Lockouts can be structured for the entire term of the loan but would more commonly be written for specified periods during the beginning of the loan. Some lenders offering permanent financing also will allow the borrower to prepay a certain percentage (usually 20%) of the principal balance each year without penalty, and in the event of full loan repayment only the remaining principal balance is subject to the penalty. There are even select lenders that offer no prepayment penalties to borrowers on both permanent and temporary financing. Make sure to discuss the details of prepayment with your adviser or lender before making any financing decision that could affect your exit strategy.
An assumption clause is a feature of a commercial loan that allows another person to take over (or assume) the loan terms and responsibility from the original borrower. The new owner or borrower typically will pay the lender a 1.00% fee and need to meet the lender’s qualification requirements by going through their underwriting process. However, if approved, the new owner can take over the current owner’s debt. This might be beneficial to the new owner if the market has shifted, and interest rates have risen. Having this feature added to your loan terms by HarborWest can be an added safeguard to your long-term strategy for the property. It is especially important if you enter into a long-term fixed loan with a matching stepdown prepay penalty or yield maintenance structure. Should you desire or need to sell the property, the prepayment penalty can be considerable if the mortgage was recently originated. You can avoid this fee and have it waived if the property is sold and the loan assumed by a qualified new owner/borrower. Where this can sometimes be a problem is when the new buyer needs a larger loan (higher LTV) than the original mortgage can provide, or if it does not contain features that might be important to the new buyer (non-recourse, interest-only payments, loan conditions, etc.).
A single-asset entity is exactly what it sounds like: a legal ownership entity (most always a limited liability company LLC) that will own the commercial property and nothing else. Borrowers will commonly setup an LLC for property ownership to protect personal liability and for tax purposes. On recourse loans, the “veil is pierced” as owners of the LLC will sign personal guarantees – so the limited liability created by the LLC really only applies for legal liability such as lawsuits from tenants or property guests.
Non-recourse loans from CMBS and Agency lenders typically require single-asset ownership however because it makes it easier for securitization, and also quite honestly it is easier for lenders to expedite foreclosure on a property and have less complications and hurdles in court if the ownership is a simple single-asset LLC and doesn’t involve any other assets or liabilities to consider. Depending on the owners, their assets and goals – a single-asset ownership may be the game plan anyways, or it could be seen as a costly and unnecessary pain required that they would prefer to not involve. You will want to consult with HarborWest, your attorney and also tax preparer to determine what is the best route for your personal situation.
An impound account is a reserve account setup by the lender to collect funds set aside for a specific purpose. The most common requirement is impounding for property taxes and property hazard insurance. The borrower will make their monthly payment, which includes principal & interest towards the loan amount, along with an annual amortized amount for property taxes and insurance. Once the property taxes or insurance premium comes due, the lender will make those payments on the borrower’s behalf or notify them of payment and allow them to access the impound account. This essentially “babysits” these funds to make sure they are paid and are usually required as a loan condition for borrowers that may have a history of missing payments or barely meet minimum financial qualifications with the lender. An impound account is important for these two items because property taxes are the only item that take priority over a mortgage lender’s first lien on title (meaning past due taxes are paid first before the mortgagee upon foreclosure sale), and because the mortgagee is the loss payee on the insurance policy. Should a major hazard occur at the property, the lender wants to be certain the losses are covered and not lose the payee benefits due to the borrower not following through with their insurance payments on-time.
Impound accounts may also be established for other situations that are a concern for the lender. An example might be if the subject investment property is a 40,000 SF industrial building leased by a single tenant, with their lease coming due in the third year of the loan. A lender might be very concerned about the tenant moving out, and the borrower put in a situation where they have a mortgage payment to make, but no offsetting property income to pull from. In this scenario, a lender might require an impound account to be setup to collect an amount they see appropriate after considering how long it might take to re-tenant and also the amount of concessions that new tenant might require on a new market lease. So if the lender determines (usually from the appraiser’s evaluation) that it would take on average 6 months to find a new tenant for the subject property, and that market TI/LC (tenant improvement allowance concession & listing agent leasing commission) is $X.XX per square foot – that might be the additional amount the lender requires to be collected, until that tenant renews their lease or the anticipated vacancy event is realized.
Lastly, an impound account might be established for any major deferred maintenance at the property. A good example might be the property inspector noting a new roof or replaced AC units be crucially needed within 12 months – when not held back at closing, this amount is usually impounded monthly to make sure the borrower has the funds to complete the deferred maintenance within the timeframe noted.
Loan approvals will often come with closing conditions to satisfy on the borrower’s side. These may be conditions that were made known to the borrower at the beginning of the loan process when the request was quoted, but also may come at loan approval after the lender has conducted their full due diligence and maybe uncovered an issue or changed their stance on a particular factor. All loan conditions will include standard requirements such as a minimum DSCR requirement, maximum LTV, a clean title report, hazard insurance, and executed mortgage documents. However, additional requirements will be added to the standard requirements on a case-by-case basis.
Some examples of additional requirements may include decreasing vacancy below 10% prior to funding, installing carbon monoxide detectors in all units, a letter of explanation for a particular credit issue, an updated entity document filed with the state, or a holdback reserve account to be established for a major deferred maintenance issue. Loan conditions can be “prior to approval (PTA)”, “prior to docs (PTD)” or “prior to funding (PTF)”. Meaning the condition is required to be satisfied before it can get the next stage towards the transaction closing. Loan conditions are probably the most negotiable of all loan terms. HarborWest will leverage their lender relationships to help minimize or negotiate loan conditions to make the requirements as flexible as possible and the loan process as smooth as possible.
Commercial Loan Costs
Originating a new commercial mortgage, both purchase loans and refinance loans, have associated costs. These costs are higher than residential loan costs due to complexity and appear higher than residential loans as fees are charged upfront and itemized. While residential loans can “build in” loan fees and costs into the rate, which in turn is paid over time by the borrower through that higher rate – commercial mortgages do not typically do this. Residential loans are more streamlined than commercial and less complex on the underwriting side. Commercial appraisals for example take on average three (3) weeks to complete due to the research and analysis required on the investment property, and 2-3x more costly. In addition, lender underwriting of the property and/or business has associated costs, and loan documents can have fees if they need to be attorney reviewed or negotiated.
Most commonly, costs to an investor to originate a new commercial loan would be a 1.00% point origination fee to the lender (for example, 1.00% point on a $5,000,000 loan would be $50,000), the cost of property reports (determined by property type and lender requirements but can include appraisal, environmental, inspection, engineering and seismic analysis), and some form of processing fee that packages costs of underwriting, loan documents, legal fees and miscellaneous costs such as background checks and credit reports.
Each lender will have their own fee structure as part of their loan offer. HarborWest can help provide you with a cost comparison between each lender and offer and analyze the effective interest rate (APR) after factoring in lender costs.
Lenders may have requirements imposed on the borrower post-closing which may be both standard or situational. Standard post-close requirements are usually annual reporting which can include submitting an annual property rent roll, income statement, and sponsor tax returns to the lender for audit purposes. Many banks will have a portfolio manager that tracks the commercial loans they own and monitors their performance to assess any potential risk of default. Situational post-close requirements are case-by-case and are usually to satisfy loan conditions. Examples might be providing evidence of a deferred maintenance item being repaired within a timeframe, a minimum balance in an established bank account with the lender for relationship rate discounts, or quarterly vacancy reports on say a multi-tenant office building that has a history of high vacancy that concerns the lender. Post-close requirements can be for the life of the loan or cancelled upon satisfaction if it is more of a conditional item.