What to include in a commercial real estate loan package

What a complete lender package contains

Section 1, deal summary: one-page transaction overview with property snapshot, capital request, sponsor name, anticipated closing. Lenders read this first to decide whether to engage at all.

Section 2, sponsor profile: principal bios, prior CRE track record (closed deals with size, hold period, outcome), relevant operating capability (in-house property management, leasing, construction).

Section 3, property: physical description, location and submarket overview, building specs, current operating performance, capital improvement history.

Section 4, financials: T-12 normalized to lender standards, current rent roll with rollover schedule, three-year operating history, lease abstracts for major tenants.

Section 5, business plan (where applicable): the value-add narrative, the pro-forma rent roll at stabilization, the cap-ex budget, the projected timeline.

Section 6, capital request: loan amount, leverage, requested structure, sources and uses table.

Section 7, exhibits: photos, comparable sales, comparable rents, prior third-party reports if available, sponsor financial statements.

T-12 normalization: what lenders expect

Lenders re-cast every T-12 to their own underwriting standard. A package that arrives already normalized to that standard saves a lender week of underwriting time and dramatically reduces the questions that come back.

Standard normalization adjustments: management-fee floor (typically 3% to 5% of effective gross income, even if owner-managed), replacement reserve at $200 to $350 per unit per year for multifamily (or property-type-specific equivalent), real-estate tax assumption based on the property's actual reassessment cycle (not just the trailing tax bill), insurance assumption based on a current quote rather than the trailing premium.

Add-backs and one-time items must be documented. A lender will accept a one-time legal expense add-back if there is a contemporaneous invoice; they will not accept it on the borrower's word.

Rent roll preparation: current, complete, and compliant

The rent roll must be dated within 30 days of submission. Older rent rolls invite lender questions about why the deal package is stale.

Format: tenant name, unit/suite number, square footage (commercial), unit type (multifamily), lease commencement, lease expiration, base rent, escalations, options to renew, security deposit, lease type (gross/NNN/modified gross), and any free-rent or tenant-improvement obligations.

Rollover schedule: a separate exhibit summarizing the percent of rent expiring by year for the next ten years. Lenders use this to size IO terms, reserve requirements, and term length. A package without a rollover schedule signals the sponsor has not thought about it.

Sponsor liquidity, net worth, and the SREO

Most institutional lenders require sponsor liquidity of at least 10% of loan amount and net worth of at least 100% of loan amount, with the key principal carrying at least 50% of the net-worth requirement personally. These are working benchmarks; specific lenders apply variants.

The Schedule of Real Estate Owned (SREO) is the standard format for documenting the sponsor's existing CRE portfolio: each property, ownership percentage, current debt, current value estimate, current NOI, lender, loan maturity, and recourse exposure.

Lenders look at the SREO to understand: total contingent recourse exposure across all loans, looming maturities that could create distress, and the sponsor's track record of execution. A clean, current SREO is one of the most reliable signals of sponsor sophistication. A messy or out-of-date SREO is a signal that should be cleaned up before the deal goes to market.

Key principal designation and what it means

Most institutional CRE loans require a Key Principal, the individual or individuals personally on the hook for the recourse carve-outs (bad-boy carve-outs and any springing recourse). The KP is not necessarily the largest equity owner; KP is a credit and operational designation distinct from equity ownership.

Designation is strategic. Estate-planning structures often hold equity through trusts; the KP designation must trace to a natural person who can sign personal guaranties and whose financial statements the lender can underwrite. Multi-sponsor deals must designate one or more KPs and document each KP's percentage of the carve-out exposure.

Third-party reports: what to order, when, and from whom

Appraisal: lender-engaged from an approved list. Borrower pays. Allow three to five weeks. Sponsors can submit a reconsideration of value with comparable sales or rent comp data the appraiser missed; document the request and the supporting data formally.

Phase I environmental site assessment per ASTM E1527-21: lender-engaged, two to three weeks. Recognized environmental conditions trigger a Phase II investigation, which adds three to six weeks and $10K to $50K of additional cost.

Property condition assessment (PCA): lender-engaged. Identifies immediate and long-term capital needs. Significant findings can trigger an upfront escrow for deferred maintenance that is funded at closing.

ALTA 2021 survey: borrower-engaged from an approved surveyor list. Allow four to eight weeks. Re-certification of an existing recent survey is often possible at a fraction of the cost of a new survey.

Zoning report or PZR letter: borrower- or lender-engaged depending on lender. Two to four weeks. Required by most CMBS and many life-co lenders.

Seismic assessment (PML report): required by some lenders in California, Pacific Northwest, and other seismic zones for properties of certain size or vintage.

Reserves and escrow setup

Tax escrow: 2 to 6 months of accrued taxes funded at closing, monthly thereafter. Negotiable on the upfront amount.

Insurance escrow: 2 to 6 months of premium funded at closing, monthly thereafter. Negotiable on the upfront amount.

Replacement reserve: monthly funding tied to a per-unit or per-SF benchmark. Push for ongoing funding only and waive the upfront at closing.

TI/LC reserve (commercial properties): tied to projected leasing activity. Property-specific calculation; do not accept a generic dollar figure.

Springing reserves: triggered by a defined event (DSCR drop, lease loss, rating downgrade of major tenant). Negotiate the trigger thresholds tightly.

Deferred maintenance reserve: funded based on PCA findings. The placement firm's value here is reading the PCA and pushing back on items that are not actually immediate.

Title insurance basics from the borrower side

The lender's title policy (mortgagee policy) is the title insurance the lender requires; it insures the lender for the loan amount. The borrower's owner's policy is separate and optional but typically issued at closing for a small marginal premium.

ALTA endorsements: 5 to 15 endorsements is typical on an institutional loan. Common endorsements: ALTA 9 (comprehensive), zoning (3.0 or 3.1), survey, access, separate tax parcel, environmental protection lien, restrictions/encroachments/minerals, contiguity (multi-parcel), usury. Each endorsement adds cost; the lender's checklist should be reviewed for items not actually needed.

Title commitment review: review the commitment for exceptions that materially affect the property, easements, restrictive covenants, prior mortgages, mechanics' liens. Items that need to be cured at or before closing should be flagged immediately, not in the final week.

Closing checklist and the week-by-week timeline

Week 1 (term sheet signed): lender engages appraisal, environmental, PCA. Borrower engages survey, zoning, title, insurance binder. Sponsor counsel and lender counsel introduced.

Weeks 2 to 3: third-party reports underway. Lender opens diligence file with operating documents, leases, prior reports. Borrower assembles closing documents (entity formation docs, certificates of good standing, KP financial statements).

Weeks 3 to 5: third-party reports delivered. Issues identified. Lender begins document drafting. Borrower's counsel reviews lender draft of loan documents.

Weeks 5 to 7: loan documents negotiated. Title commitment finalized. Insurance endorsements issued. Closing checklist tracked daily.

Week 7 to 8: closing. Wire instructions confirmed. Funds disbursed.

This is the timeline for a clean stabilized perm. Bridge runs faster (4 to 8 weeks). Agency runs slower (8 to 16 weeks). HUD runs much slower (24 to 36 weeks).

Common deal-killer diagnostics

Appraisal gap: appraisal comes in below the contract price or below underwritten value. Mitigants: borrower-funded reconsideration of value with comp data, recasting the loan structure to lower LTV, re-trading the purchase price (acquisition deals).

PCA findings: significant deferred maintenance triggers an upfront escrow. Mitigants: detailed cap-ex history with invoices, sponsor cap-ex commitment in the closing budget, negotiating the escrow as a holdback rather than upfront cash.

Environmental: Phase II findings or recommended Phase III. Mitigants: environmental insurance wrap, lender-acceptable indemnification from prior owner, regulatory closure letter.

Title or survey defects: encroachments, missing access, undisclosed easements. Mitigants: curative work pre-closing, ALTA endorsement to insure over the issue, escrow pending cure.

Zoning: nonconforming use, missing CO, unpermitted improvements. Mitigants: zoning attorney opinion, legal nonconforming letter from the municipality, limited use endorsement on title.

Building a financing memorandum that reads in 10 minutes

Lender deal teams triage incoming financing memos in roughly 10 minutes per package. A memo that buries the deal in 80 pages of exhibits before the lender can find the basic terms is more likely to get politely declined than a clean 25-page memo that gets to the deal points fast.

Section ordering matters: lead with the deal summary (one page, headline numbers), then the property and submarket (three to five pages), then the sponsor profile (two to three pages), then financials and business plan (five to ten pages), then exhibits in the back. The reader should be able to decide whether to engage on page one and validate that decision on pages two through five.

Visual discipline: photos of the property on page two, a submarket map on page three, a clear sources-and-uses table on the deal-summary page. Lenders process visual information faster than text; a memo that uses charts and tables for the basic data points reads in less time than a wall-of-text equivalent.

Updating discipline: rent roll dated within 30 days, T-12 dated within 30 days, capex history through the most recent quarter. Lenders can tell when data is stale; stale data lowers their estimate of the sponsor's operational discipline.

Sources and uses: what lenders scrutinize

The sources-and-uses table is the deal in one page. Lenders read it for: total project cost (validates the loan amount as a percentage of cost), sponsor equity contribution (validates skin-in-the-game), use of proceeds breakdown (validates that the loan funds productive uses), and any contingency line (validates that the budget has cushion for cost overruns).

Sponsor equity should be presented at cost basis, not at appreciated current value. A sponsor that bought the land five years ago at $5M and is now contributing it at $10M of current appraised value is not contributing $10M of fresh equity; lenders discount this and the package should be transparent about it.

Closing cost lines should reflect realistic estimates. A closing cost line that systematically understates the third-party report cost, the lender legal cap, the title insurance premium, and the borrower legal cost is a sign of an inexperienced sponsor or a sloppy advisor. Lenders re-cast these and the package looks better when it pre-empts the recasting.

Use of proceeds: differentiate between hard costs, soft costs, financing costs, working capital, and any cash-out. Lenders are most comfortable with hard-cost spending; they price cash-out and working-capital allocations differently.

Pro-forma vs. trailing NOI: how to bridge them for the lender

On stabilized perm, the lender will underwrite to trailing NOI (T-12 or T-3 annualized) plus a defined adjustment for known go-forward changes. On value-add bridge, the lender will underwrite to a defined stabilized NOI projection. The package needs to show both.

Bridge presentation: a clear walk from current trailing NOI to projected stabilized NOI, with each line item supported by a documented assumption. Rent roll growth supported by current submarket comps and lease-trade-out data. Operating expense projections supported by lender-standard normalization. Capex projections supported by the cap-ex budget and engineering report.

The sponsor's job is to make the projection believable, not aggressive. A pro-forma NOI projection that shows 25% growth in 18 months on submarket data showing 6% rent growth is not credible; lenders discount it and the bake-off responses come back wider.

Conservative pro-forma with documented assumptions usually produces tighter pricing than aggressive pro-forma with thin support. Sponsors often resist this because it reduces the headline proceeds; the practical reality is that lenders price to the credible underwriting, not the aspirational one.

Title and survey prep, borrower-side workstreams

Title commitment: order from the chosen title agent in week 1 of the engagement. Two-week turn for a clean property; four-week turn if there are recorded matters that need investigation. Review the commitment with counsel for any exception that affects the loan: prior mortgages requiring payoff, mechanics' liens requiring release, easements affecting the property's use, restrictive covenants limiting permitted use.

Survey: order in week 1 if a current ALTA 2021 survey is not available. Six- to eight-week turn for a new survey; two- to three-week turn for an update of a recent survey. The survey identifies encroachments, missing access, and any boundary issues; a problem on the survey can require a curative recordation that takes weeks.

Endorsement list: most institutional loans require 5 to 15 ALTA endorsements (comprehensive, zoning 3.0 or 3.1, survey, access, separate tax parcel, environmental protection lien, restrictions/encroachments/minerals, contiguity for multi-parcel, usury). Each endorsement adds cost; the lender's checklist should be reviewed for items not actually needed for the property.

Insurance binder: order from the chosen insurance agent in week 1. The binder confirms property, liability, business interruption (commercial), flood (where required by FEMA flood zone), and any property-specific coverage (windstorm in coastal zones, earthquake in seismic zones). Lender-required endorsements (lender's loss payee, additional insured, 30-day notice of cancellation) take coordination.

Borrower counsel selection and the closing-cost line

Borrower counsel for a CRE loan handles loan-document review and negotiation, title and survey review, entity work (formation, good standing, authorized signer resolutions), closing coordination, and post-closing follow-up (recording, distribution of original documents). On a typical $20M deal, total borrower legal cost runs $25K to $75K depending on complexity.

Counsel selection criteria: experience with the specific lender or capital source (an attorney who has closed multiple loans with the same lender knows the documents and the personalities), experience with the property type (multifamily counsel and industrial counsel face different recurring issues), and capacity to meet the deal's closing timeline.

Cost discipline: a fixed-fee or capped-fee engagement is usually possible on routine deals and avoids hourly-rate surprises. Hourly engagements with a defined estimate and an obligation to alert the borrower if the estimate is exceeded are the alternative.

Coordination with placement firm: the firm runs the commercial negotiation; counsel runs the legal negotiation. Both happen in parallel during weeks 3 to 6 of the closing process. Clear division of responsibility avoids both the firm and counsel negotiating the same point in different directions.

Environmental Phase I prep from the borrower side

Phase I per ASTM E1527-21 is required by virtually all institutional lenders. The Phase I confirms whether there are recognized environmental conditions on the property; a clean Phase I closes the environmental file. Findings of recognized environmental conditions trigger a Phase II investigation, which adds three to six weeks and $10K to $50K of cost.

Borrower-side prep: pull the current environmental file from prior ownership (if available), pull any environmental reports from prior loan closings on the property, identify any known historical uses of the site (gas station, dry cleaner, manufacturing) and have documentation ready. The Phase I report relies heavily on historical use review; gaps in the historical record produce conservative report findings.

Phase II planning: if there is reason to expect a Phase II will be required (historical use, prior known contamination, adjacent property history), pre-plan the Phase II scope and timeline so the closing schedule does not slip. In some cases, environmental insurance or a Pollution Liability Insurance wrap can substitute for Phase II investigation; lender approval is required.

Existing remediation: if the property has prior remediation activity, gather the regulatory closure letters or no-further-action letters. Lenders that see ongoing remediation without documented closure typically require additional environmental escrow or environmental indemnification from the seller.

Insurance binder coordination, endorsements, deductibles, named insureds

Lender-required endorsements: lender's loss payee, additional insured, 30-day prior notice of cancellation, mortgagee clause. Some lenders require ISO standard policy forms; others accept admitted-carrier equivalents. The binder should be issued in the lender's preferred format to avoid endorsement coordination at the closing table.

Deductibles: lenders typically cap the property deductible at 1% of property value or a fixed dollar amount (e.g., $25K to $100K depending on property type). Higher deductibles produce lower premium but require lender approval and sometimes a separate deductible reserve.

Named insureds: the borrower SPE is the named insured; the property manager and the sponsor entity are typically additional insureds. Get the entity names exactly right at binder time; binder corrections at the closing table are a common cause of last-minute delays.

Coverage adequacy: replacement-cost coverage on the building (not actual cash value), business-interruption coverage equal to 12 months of rental income, flood coverage if in a FEMA Special Flood Hazard Area, builders-risk coverage during any active construction. Lenders sometimes require ordinance-or-law coverage and equipment-breakdown coverage as well.

Sponsor liquidity testing: what lenders verify

Most institutional lenders require sponsor liquidity at a defined floor (commonly 10% of loan amount) and net worth at a defined floor (commonly 100% of loan amount), with the key principal carrying at least 50% of the net-worth floor personally. The lender verifies this through documentation, not on the sponsor's word.

Liquidity verification: brokerage statements, bank statements, and money-market statements dated within 60 days of closing. Lenders typically discount illiquid holdings (private fund interests, restricted stock, real estate equity) to zero or a defined illiquidity discount; the liquidity test runs on cash, marketable securities, and Treasury holdings only.

Net-worth verification: a personal financial statement signed and dated within 90 days of closing, supported by an SREO for real estate holdings and brokerage statements for liquid assets. Some lenders require the PFS to be reviewed or compiled by a CPA; others accept self-prepared.

Multi-sponsor allocation: when liquidity and net-worth requirements are met by aggregating across multiple sponsors, the LOI should clearly identify who the key principal is and how the requirement is allocated. Aggregation across non-related parties is sometimes allowed but typically requires joint-and-several recourse on the carve-outs, which is an unfavorable structure for sponsors who intend to operate as separate businesses.

Liquidity discounting: highly leveraged sponsors with significant existing recourse exposure across other loans may be discounted on liquidity by the new lender's underwriter. The SREO disclosure should reflect total contingent recourse exposure transparently; lenders that discover undisclosed recourse exposure typically retrade or walk.

Lender Q&A management during the lender comparison

After the package goes out, lender questions arrive, typically 5 to 15 substantive questions per lender on a clean stabilized deal, more on bridge or value-add. The placement firm centralizes responses to make sure all lenders receive consistent information.

Question categorization: most lender questions fall into three buckets. Bucket 1, clarification of items in the package (the answer is in the data; the lender just missed it). Bucket 2, additional information not in the package (the answer requires sponsor input or additional document production). Bucket 3, diligence requests for sensitive information (sponsor financial statements, prior third-party reports, SREO updates).

Response timing: respond to bucket 1 after reviewing the request; respond to bucket 2 within 72 hours; respond to bucket 3 with a defined response timeline that aligns with the bake-off submission window. Slow responses to lender questions signal disorganization and depress LOI quality.

Distribution discipline: questions that produce generic answers (clarification of submarket data, T-12 normalization adjustments) get distributed to all lenders simultaneously. Questions that produce lender-specific answers (sponsor financial statements requested only by lenders that have advanced to a defined diligence stage) stay one-to-one.

Issue spotting: a lender question that flags an issue (a discrepancy in the rent roll, an unexplained operating-expense spike, a gap in the sponsor's track record) is a gift. Address the issue at the bake-off stage rather than letting it surface during closing diligence.

Frequently asked questions