Origination Fee
An upfront fee charged by a lender for underwriting, processing, and funding a commercial real estate loan, typically expressed as a percentage of the loan amount. Origination fees generally range from 0.25% to 2.0% depending on the lender type, loan complexity, and market conditions. Bridge loans and debt fund transactions tend to have higher origination fees than permanent financing. Origination fees are a component of the borrower's total cost of capital and are factored into investment return calculations.
Related Terms
Bridge Loan
Short-term financing (typically 1-3 years) used to "bridge" the gap between acquisition/repositioning and permanent financing. Bridge loans are ideal for value-add strategies, lease-up, renovation, or properties that don't qualify for traditional permanent financing. They feature higher rates and more flexible terms than permanent loans.
Debt Fund
Private investment funds that originate commercial real estate loans, typically focusing on bridge, mezzanine, or higher-risk transactions that traditional lenders avoid. Debt funds offer flexible terms, quick execution, and higher leverage but at higher interest rates. They are valuable for transitional assets, value-add strategies, and complex capital structures.
Underwriting
The process by which a lender evaluates the risk and determines the terms of a proposed commercial real estate loan. Underwriting involves analyzing the property's income and expenses, market conditions, borrower financial strength, and collateral value. Lenders stress-test assumptions including vacancy, rental growth, and interest rate scenarios. The underwritten NOI, which may differ significantly from the borrower's pro forma, determines the maximum loan amount through LTV, DSCR, and debt yield constraints.
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