The lending structure in real estate finance

Real estate finance transactions are either acquisition finance transactions or development finance transactions, depending on whether the property is being purchased as an investment (that is, it is already generating revenue) or whether the property is being purchased to be developed.

This guidance note focuses on what is thought of as traditional real estate finance, that is lending against the cash flow generated by a property, typically with security over that real property. In its simplest form, traditional real estate finance involves a loan to a borrower which is repaid from the rental income of the borrower’s property, usually with the benefit of a mortgage over that real property. This guidance note discusses:

• • the structure of a typical acquisition finance transaction and development finance transaction;
• • the key parties and documents in real estate finance transactions;
• • the key features of a real estate finance facility agreement; and
• • a lender’s key risks in a real estate finance transaction and how these may be mitigated.

See The lending structure in real estate finance.