Typical burn-off triggers: DSCR of 1.20x to 1.25x sustained for two to four consecutive quarters, debt yield of 8.0% to 9.0%, achievement of a stabilized- occupancy threshold (typically 90%), or completion plus a defined seasoning period. The burn-off should be defined in writing at the term-sheet stage; default lender drafts leave guaranties in place to payoff.
How to structure burn-off so it triggers
On bridge and value-add loans with completion or carry guaranties, the default lender draft typically leaves both guaranties in place until loan payoff. Borrower-friendly draft has each guaranty burn off when the property reaches a defined operating threshold and stays there for a measured period.
Completion guaranty burn-off: substantial completion to a defined standard, certificate of occupancy issued by the local jurisdiction, and a defined seasoning period (typically 6 to 12 months of stabilized operations). Avoid the open-ended language that leaves the guaranty alive after the project is finished and operating in line with plan.
Carry guaranty burn-off: DSCR of 1.20x or 1.25x sustained for two to four consecutive quarters on a trailing-twelve-month basis. Negotiate the cure right that lets the borrower deposit cash to bring DSCR back into compliance and immediately re-trigger the burn-off clock.
Recourse burn-off on partial-recourse perm: debt yield of 8.0% to 9.0% sustained for four quarters is the most common test. Some lenders accept a single-test burn-off (one quarter above the threshold); push hard for it.
Sources
- Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations · Mortgage Bankers Association · 2026-Q1
- Semiannual Risk Perspective · Office of the Comptroller of the Currency · 2025-12