How to finance a commercial real estate acquisition

Step one: capital-source selection before the PSA is signed

Acquisition timelines move faster than perm refis. The deal team needs a working view of which capital source will fund the loan before the PSA is signed, so the financing contingency length and earnest-money structure can be negotiated against a real timeline. Multifamily acquisitions typically target agency or bank perm; non-multifamily stabilized targets life co or CMBS; value-add and lease-up targets bridge from a debt fund or private capital.

The asset class, in-place stabilization, hold horizon, and sponsor profile all narrow the lender options before the PSA is in market. A debt advisor running a competitive process at this stage typically previews 4 to 8 lender quotes informally, lets the buyer negotiate the PSA against realistic terms, and converts the previews into formal term sheets the day the contract is signed.

Step two: term sheets in parallel within 7 to 14 days

From PSA signing to formal term sheets should run no more than 14 days. The financing memo, T-12, rent roll, sponsor SREO, and operating assumptions go to the lender options in parallel, not serially. Each lender quotes off the same package with the same submission timing.

Term sheets should be returned within 7 to 14 days. Lenders that cannot quote in that window are typically not the right counterparty for an acquisition with a 60- to 90-day closing timeline. Quotes are evaluated on note rate, all-in rate, sizing, structural terms (recourse, IO, prepay, reserves), and execution certainty.

Step three: third-party reports start the day the term sheet is signed

Appraisal, environmental Phase I, property condition assessment, zoning, and survey are the long-pole items on most acquisitions. Ordering them the day the term sheet is signed compresses 6 weeks of report production into the window the lender already needs for credit approval.

On a typical 75-day closing: weeks 1 to 2 third-party reports ordered, weeks 3 to 5 reports delivered and lender credit approval, weeks 5 to 8 loan documentation and title clearance, weeks 8 to 11 closing checklist and funding. Slippage in any phase compresses the next; the schedule has limited tolerance for false starts.

Step four: sizing math the lender will use

Three sizing tests, lowest binds. Loan-to-value tested on the appraised as-is value (not the purchase price), which can come in below the contract on competitive bids. Debt-yield tested on the underwriter's NOI (typically a haircut of seller's pro forma). Debt-service-coverage tested at the underwriting rate (the higher of the quoted rate and a stress floor) and the underwriting amortization (typically 30 years).

On a $30M acquisition with $1.8M underwritten NOI and $28.5M as-is appraisal: LTV 70% caps at $19.95M; debt-yield 9% caps at $20M; DSCR 1.30x at 6.25% / 30-year caps at $20.4M. LTV binds, sized loan $19.95M. The buyer needs to plan the equity check against the sized loan, not the term-sheet headline.

Step five: closing the gap between award and funding

Several recurring problems compress the closing window: appraisal coming in below contract, environmental discovery requiring Phase II, insurance pricing coming in materially above proforma, taxes reassessing on transfer, lease-up momentum slowing during the diligence period.

Each has a structural answer. Appraisal gap: rate-and-term refi ask reduced, equity check increased, or seller credit. Environmental: Phase II ordered immediately, lender exception negotiated against escrow. Insurance: shop the program in parallel, lender accepts higher premium with offsetting reserve. Taxes: escrow at full reassessed basis, sized loan reduced. Lease-up: bridge financing positioned as backup, with takeout to perm at stabilization.

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