How does a subscription line (capital call facility) work for a CRE fund?

Subscription line mechanics and how CRE funds use them

Collateral structure: the lender takes a security interest in the fund's right to call uncalled capital from LPs and a pledge of the fund's bank account where capital-call proceeds are deposited. The LPs themselves do not directly grant security; the collateral is the fund's contractual claim against them.

Eligible LP definition: lenders define eligible LP commitments based on creditworthiness, typically institutional LPs (pensions, endowments, corporate plans, large family offices) qualify; high-net-worth individuals may be excluded or counted at a discount; LPs from non-OECD countries typically excluded from the borrowing base.

Advance rate: typical 80% to 95% of eligible LP commitments depending on LP composition. Funds with concentrated commitments from top-tier institutional LPs see the highest advance rates; funds with diverse high-net-worth LP bases see lower rates.

Use cases: bridge funding new investments before LP capital is called (avoids LP cash drag); fund expense management; provide liquidity for working capital needs; bridge GP commitment funding; issue letters of credit for property-level guaranties.

IRR enhancement: by deferring LP capital calls until net deployment is needed, the subscription line shortens the LP's effective hold period. The same gross deal IRR translates to a higher net LP IRR because LP capital sits idle for less time.

Risk consideration: aggressive subscription line use can mask underlying performance; the headline IRR of the fund is partly a financing artifact. Some institutional LPs request both 'with sub-line' and 'without sub-line' IRR reporting; ILPA published guidance on this disclosure practice.