What goes into a NAV facility eligible borrowing base?

Borrowing base eligibility tests in detail

Stabilization test: typical lender exclusion of recently acquired assets pending stabilization (e.g., assets within their first 12 to 24 months of fund ownership, or assets in lease-up). Stabilization requires defined occupancy and DSCR thresholds.

Performance test: assets in payment default on senior debt, in covenant default, or with material operating-performance shortfalls are excluded from the borrowing base. Assets in workout or special servicing typically excluded automatically.

Concentration tests: single-asset cap (typical 20% to 25% of portfolio); single-property-type cap (typical 40% to 60%); geographic cap (typical 40% to 60% in any single MSA); single-LP cap (in mixed funds with concentrated LP base).

Document quality: assets with unresolved title issues, environmental exceedances, or pending litigation typically excluded. Recently completed dispositions in escrow may or may not count depending on lender practice.

Look-through valuation: lender values the fund's interest in each asset using independent valuation, accepting NAV remarks from qualified valuation firms. Aggressive sponsor NAV marking can be challenged at remark events, leading to borrowing base reductions.

Disposition timing: when an asset is sold, it is removed from the borrowing base on the sale date. Fund must use sale proceeds to repay the portion of the loan attributable to that asset (or post equivalent collateral) before the proceeds can be used for other purposes.

Sponsor playbook: at facility inception, model the borrowing base under multiple stress scenarios (15% NAV decline, two largest assets stressed, top-MSA stress). Confirm the structure provides sufficient cushion to absorb stress without triggering paydowns. Reserve liquidity for borrowing-base shortfalls.