# Indicative Loan Term Sheet

> **Illustrative teaching document.** This is not a real financing quote, and
> the lender does not exist. The structure and the covenant package are typical
> of what a first mortgage on this kind of asset might look like, written so the
> exercise has something concrete to size against.

**Borrower:** a single-purpose entity to be formed
**Property:** Northgate Commons, 120 units, built 1986
**Lender:** Illustrative Lender (fabricated, for instruction only)
**Date:** 2026-12-31

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## Loan terms

| Term | Quote |
|---|---|
| Loan type | Fixed-rate first mortgage, non-recourse subject to standard carve-outs |
| Interest rate | 6.35%, fixed for the term |
| Term | 5 years |
| Amortization | 30 years |
| Interest-only period | 24 months from closing |
| Origination fee | 1.00% of the loan amount, payable at closing |
| Prepayment | Step-down 3-2-1, open in the final 90 days. |
| Escrows | Monthly escrows for taxes and insurance. Replacement reserve escrow of $300 per unit per year. |

## Sizing constraints

Proceeds are the **lesser** of the three tests below. All three are tested at
closing on the lender's underwritten net operating income, not on the seller's
reported figures and not on the broker pro forma.

| Test | Threshold | Basis |
|---|---|---|
| Maximum loan to value | 65% | Loan amount divided by the lesser of purchase price and appraised value. |
| Minimum debt service coverage | 1.25x | Underwritten net operating income after a market management fee and replacement reserves, divided by the greater of actual and fully amortizing debt service. |
| Minimum debt yield | 10.25% | Underwritten net operating income divided by the loan amount. |

### Notes on the sizing tests

1. **The coverage test uses the fully amortizing constant.** During the
   interest-only period the actual payment is lower, but the loan is sized on
   the greater of actual and fully amortizing debt service. The
   30-year constant at 6.35% is
   0.074668 of the loan balance per year, which is a
   monthly payment factor of 0.00622236 per dollar
   of loan.
2. **The debt yield test does not care about the rate or the amortization.** It
   is net operating income over the loan amount, which is the lender asking what
   return the property alone would produce if it were taken back. It is the test
   most often left out of a first pass.
3. **Underwritten net operating income** will include a market management fee
   whether or not the borrower intends to self-manage, replacement reserves at
   the escrow rate above, and property taxes adjusted for any reassessment the
   lender expects to follow the transfer.

## Conditions

Satisfactory appraisal, property condition report, environmental report, lease
audit, and borrower financial review. Non-recourse subject to standard bad-boy
carve-outs and an environmental indemnity.

## Not a commitment

This sheet is illustrative and prepared for a course exercise. It is not a
commitment to lend, and it is not an offer.

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*Illustrative teaching case. Northgate Commons, the market, the broker, the lender, the comparables, and every figure in this packet are fabricated for instruction. Nothing here is a real property, a real transaction, or a real financing quote.*