Term sheet redline checklist

How to use

Use this checklist line-by-line before signing any CRE loan term sheet. Each item flags a place a placement firm would push back, the standard lender position, and the borrower-friendly counter. Not legal advice, bring counsel onto every redline before it goes back to the lender.

Section 1. Pricing and rate-lock

Pricing lines are the most-negotiated visible items but rarely the largest dollar movers. The structural sections that follow typically dwarf the spread negotiation in lifetime cost.

• All-in spread / coupon, confirm whether quoted at index plus spread or fixed coupon; lock the conversion math.
• Index, confirm Treasury, swap, or SOFR; identify the lender's index-spread methodology.
• Rate-lock mechanic, best-efforts vs. early lock; identify rate-lock fee, deposit, and refundability.
• Origination fee, typical range 0.50% to 1.00%; cap negotiable on competitive deals.
• Exit fee, bridge/CMBS may have one; eliminate or cap on competitive bake-offs.

Section 2. Sizing and proceeds

Identify the binding test (LTV, DSCR, debt yield) and negotiate the constraint that binds. Negotiating the non-binding test wastes capital.

• Loan amount, confirm matches request; lender draft sometimes drops 5% to 10%.
• LTV / LTC ceiling, appraisal-driven; identify appraiser selection mechanic.
• DSCR floor, confirm rate, amortization assumption, and underwriting NOI used.
• Debt yield floor, confirm NOI and balance assumptions; identify any forward-yield test.
• Stress test, disclose any rate stress applied for sizing.

Section 3. Recourse and bad-boy carve-outs

Standard list is non-negotiable in substance. Push back on the expanded list, voluntary bankruptcy, environmental not caused by borrower, springing on financial-covenant breach, involuntary-bankruptcy springing without dismissal cure window.

• Recourse: full / partial / non-recourse, identify percentage and burn-off triggers if partial.
• Bad-boy carve-out list, review every item; flag expanded items.
• Springing recourse on insolvency, require involuntary case to be dismissed within 90 days before triggering.
• Environmental carve-out, narrow to acts caused by borrower, not pre-existing conditions.
• Key principal, confirm net worth and liquidity tests, identify any cross-collateralization.

Section 4. Completion and carry guaranties (construction / bridge)

Both convert non-recourse to substantially recourse during the riskiest period. Negotiate definition, cap, and burn-off triggers in writing.

• Completion guaranty, define scope (substantial completion to defined standard).
• Carry guaranty, cap amount or tie to defined coverage threshold.
• Burn-off triggers, DSCR for X consecutive months, debt-yield threshold, or stabilization test.

Section 5, MAC clause and conditions to closing

The MAC is the largest retrade lever. Tightening it is one of the highest-value structural concessions a borrower can win.

• MAC scope, enumerate specific events (casualty, condemnation, loss of major tenant); exclude general market and industry conditions.
• MAC notice and cure, require written notice and a defined cure period.
• Third-party report contingencies, narrow to specific findings, not lender's discretion.
• Title and survey, confirm acceptable exceptions standard.
• Insurance, confirm coverage and deductible thresholds before signing.

Section 6. Prepayment and exit

Quantify the prepay structure cost over the holding period before signing. A favorable prepay menu can be worth more than 25 bps of spread.

• Prepay menu, yield maintenance, defeasance, declining-percentage, or open window.
• Open window, typical last 3 to 6 months; negotiate longer where possible.
• Partial prepay rights, confirm cure-and-keep mechanics.
• Assumption, confirm assumability and assumption-fee cap.
• Lock-out period, confirm length and any spring-trigger mechanics.

Section 7. Reserves, cash trap, covenants

Reserve mechanics affect cash distribution every period. Negotiate the trigger, the cure, and the release before signing.

• Upfront reserves, taxes, insurance, replacement, TI/LC, capex; cap each.
• Ongoing reserves, confirm monthly funding and release mechanics.
• Cash trap trigger, DSCR and debt-yield levels; require multi-quarter triggering, single-quarter curing.
• Reporting covenants, confirm timing and documentation depth.
• Financial covenants, identify any DSCR or debt-yield maintenance test.

Section 8. Fees, expenses, and the binding paragraphs

Even on a non-binding term sheet, the deposit, exclusivity, expense reimbursement, and confidentiality paragraphs are binding. Read them with counsel before signing.

• Good-faith deposit, refundability conditions; carve out lender failure to perform.
• Expense deposit, cap legal and consultant spend.
• Lender legal cap, typical $25K to $75K depending on deal size.
• Exclusivity period, negotiate to 30 days where possible.
• Confidentiality, identify scope and term.