Senior Debt
Senior Debt in Practice
A $30,000,000 industrial property secures a senior loan at 65 percent LTV, or $19,500,000. The property's $1,950,000 NOI puts debt yield at exactly 10 percent, satisfying the lender's floor. If the market softens and the asset later sells for $22,000,000, the senior lender recovers its full $19,500,000 before any junior capital sees a dollar, leaving only $2,500,000 for everyone above it in the stack.
Senior Debt: What the Market Actually Requires
Senior lenders segment cleanly by asset profile and borrower priorities. Life insurance companies offer the sharpest pricing on stabilized, institutional-quality assets but hold leverage to 50 to 65 percent and cherry-pick property quality. Banks lend 60 to 70 percent, usually with some recourse and a deposit relationship expectation, and dominate construction lending. CMBS conduits reach 70 to 75 percent non-recourse on stabilized cash flow but bring servicing rigidity. Agency lenders own stabilized multifamily up to roughly 80 percent. Debt funds stretch to 75 or 80 percent of cost on transitional deals, priced accordingly.
Because the senior loan is the largest and cheapest piece of the stack, its terms ripple through everything above it. The senior lender decides whether mezzanine debt or preferred equity is even permitted behind it, sets the cash management triggers that can trap distributions, and controls the covenant package. A senior loan 25 basis points cheaper but with a hair-trigger cash sweep can cost a sponsor far more than the rate savings when distributions stop during one soft quarter.
The recurring borrower mistake is negotiating the senior loan as if rate were the only variable. Prepayment flexibility, recourse carve-out scope, reserve requirements, and permitted-transfer language determine what the loan actually costs over its life. On a five-year hold, the difference between yield maintenance and a step-down prepayment structure can dwarf the spread difference between two competing quotes, and the right to place subordinate capital later is worth real money when a refinance market turns hostile. Sophisticated borrowers rank quotes on proceeds, flexibility, and structure together, then use the runner-up quote as leverage on the winner's weakest term.
Why It Matters for Your Loan
The senior loan sets the foundation for total proceeds, blended cost, and every structural option above it in the stack. Choosing the wrong capital source costs proceeds, flexibility, or both: a life company quote may sit 10 points of leverage below a debt fund, while a securitized loan may block the lease amendment your anchor tenant needs. Commercial Lending Solutions runs every senior request across banks, life companies, agencies, CMBS, and debt funds simultaneously, so the binding constraint and the structure, not a single lender's appetite, determine the outcome.
Related Terms
Senior Debt: FAQ
Put This Knowledge to Work
Understanding Senior Debt is step one. Commercial Lending Solutions structures deals around these numbers every day, across 1,000+ lenders. Free deal review, response within 24 hours.
Apply for Financing →