Extension-with-paydown gives the borrower additional term, typically 6 to 24 months, in exchange for a partial principal paydown that brings leverage back to the lender's debt-yield or LTV threshold. Common on bridge loans where the extension test fails because stabilization slipped behind schedule.
How is the paydown sized?
Calculate the principal reduction required to bring combined-stack debt yield to the threshold (e.g. 8.0 percent). On a $30 million loan with $2.1 million NOI and a target 8.0 percent debt yield, the borrower must paydown to $26.25 million, a $3.75 million paydown to qualify for extension.
Where does the paydown come from?
Most often sponsor cash from co-invest, replacement equity from a new partner, or proceeds from refinancing or selling another asset in the portfolio. Some lenders accept a fresh debt service reserve in lieu of principal paydown if the underlying NOI is expected to ramp imminently.
Sources
- Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations · Mortgage Bankers Association · 2026-Q1