What is a term sheet in commercial real estate?
A term sheet is a lender's non-binding outline of proposed CRE loan terms, including rate, LTV, recourse, and fees, plus how to compare competing lender quotes.
In commercial real estate finance, a term sheet is a non-binding document a lender issues after initial review of a deal that outlines the proposed terms of a loan: amount, interest rate, loan-to-value, amortization, recourse, covenants, and fees. It signals that the lender wants the deal and sets the framework for underwriting, but neither party is committed until a formal commitment letter is signed, so terms can and do change before closing.
What is a term sheet in real estate lending?
In real estate lending, a term sheet is the document a lender hands a borrower after a first look at the deal, laying out the loan it is prepared to make: proceeds, rate, loan-to-value, amortization, recourse, covenants, and fees. It is the lender's opening position, issued before the deal goes through full underwriting and credit committee. Nothing binds either side yet, so the numbers on the sheet are a starting framework rather than a promise, and they move as third-party reports and financial verification come back. The sheet matters because it is specific enough to compare against a competing lender's offer and detailed enough to run underwriting against.
What a lender term sheet covers
A term sheet arrives after initial conversations and the lender's first pass at the deal, and it outlines the general structure under which the lender would be willing to extend credit. The standard contents:
- Loan amount and LTV. The proposed proceeds, often expressed as the lesser of a dollar figure and a maximum loan-to-value ratio.
- Interest rate. Fixed or floating, and if floating, the index plus spread.
- Term and amortization. How long until maturity, and the schedule payments are calculated on, including any interest-only period.
- Recourse. Full recourse, partial guarantees, or non-recourse with standard carve-outs, with named guarantors.
- Covenants. Ongoing obligations, most commonly a minimum DSCR (1.25x is a typical figure), sometimes a debt yield floor, reporting requirements, and restrictions on additional debt.
- Reserves and escrows. Requirements to escrow taxes and insurance, and sometimes replacement reserves or tenant improvement and leasing commission reserves.
- Fees. Origination and exit fees, usually quoted as a percent of the loan amount (origination is often 0.5% to 1%), plus a good-faith deposit toward third-party report and legal costs.
- Prepayment. Lockouts, yield maintenance, defeasance, or step-down penalties governing an early exit.
- Closing conditions. The preliminary list of what funding requires: satisfactory appraisal, Phase I environmental, survey, title, and borrower financials.
Janover Pro's glossary makes the practical point for borrowers: prepayment flexibility and recourse language deserve attention before rate, because those two provisions are where the real economic differences between lenders hide.
Non-binding, with two real exceptions
A term sheet is non-binding for both borrower and lender. It is an expression of interest in the transaction, contingent on everything underwriting has yet to verify. The borrower can walk to a better quote; the lender can retrade if the appraisal disappoints.
Two carve-outs matter in practice. First, specific provisions such as confidentiality clauses or exclusivity periods can be binding even inside an otherwise non-binding document, and an exclusivity clause takes your other lender conversations off the table while it runs. Second, most lenders collect a good-faith deposit at signing to cover appraisal, environmental, and legal costs, and that money is spent whether or not the loan closes. Read those paragraphs before celebrating the rate.
Term sheet vs LOI vs commitment letter
CRE deals produce a family of pre-contract documents, and the vocabulary gets mixed up constantly. The map:
| Document | Between | Binding? | When it appears |
|---|---|---|---|
| Letter of intent | Buyer and seller | Mostly no | Before the PSA |
| Term sheet | Lender and borrower | No, except exclusivity and confidentiality | After initial lender review |
| Commitment letter | Lender and borrower | Yes | After full underwriting and credit approval |
The letter of intent is the buy-side sibling: same non-binding framework logic, aimed at the seller instead of a lender. The commitment letter is the term sheet's binding successor. As FNRP puts it, a commitment letter is a legally binding commitment to lend that emerges after the full underwriting and approval cycle, and both parties face legal consequences for failing to follow through. The two documents cover nearly identical terms; the signatures mean different things.
Join CRE teams already running their deals on MotionCRE.
How to compare competing term sheets
Competing sheets rarely differ on one axis, which is why comparing them on rate alone loses money. A worked example on a $10,000,000 loan request against a property producing $950,000 of NOI:
| Term | Lender A | Lender B |
|---|---|---|
| Loan amount | $10,000,000 | $10,000,000 |
| Rate (fixed) | 6.10% | 6.35% |
| Amortization | 30 years | 25 years, first 24 months interest-only |
| Max LTV | 60% | 65% |
| DSCR covenant | 1.25x | 1.25x |
| Recourse | 25% partial guarantee | Non-recourse with carve-outs |
| Origination fee | 0.75% ($75,000) | 0.50% ($50,000) |
| Annual debt service | $727,200 | $635,000 during IO, then $799,000 |
Lender A looks better on rate: 25 basis points on $10 million is roughly $25,000 a year of interest. But run the covenant math. On Lender A's amortizing payment, DSCR is 1.31x, comfortable. Lender B starts at 1.50x during the interest-only period, then drops to 1.19x once amortization begins, below its own 1.25x covenant unless NOI grows by year three. Meanwhile Lender B offers non-recourse and $25,000 less in origination, and its IO period holds about $92,000 a year of extra cash flow during the exact window a value-add plan burns capital.
Neither sheet dominates. Lender A fits a stabilized hold; Lender B fits a two-year renovation with a refinance or sale before amortization bites, provided the sponsor believes the NOI growth. That judgment only becomes visible when the sheets sit side by side with the payments computed. The loan comparison tool runs exactly this math across quotes, and the DSCR calculator stress-tests the covenant line at different NOI levels.
Tracking the process from outreach to signed sheet
A competitive debt process means putting the deal in front of many lenders, and the resulting sprawl is a genuine operations problem: a dozen conversations at different stages, quotes arriving in different formats, follow-ups owed to half of them, all while the PSA's financing contingency clock runs.
This is a tracking problem before it is a finance problem, and it is one MotionCRE handles natively. The financing workspace on each deal tracks every lender from first contact through quote, term sheet, and commitment, with quotes compared side by side and the documents stored on the deal. The process itself, from building the lender list to managing the deposit-and-exclusivity decision, is covered in how to manage lender outreach for a CRE deal.
After the signature: underwriting and the commitment letter
Signing a term sheet starts the real work. The lender orders third-party reports, verifies financials, and runs the deal through credit committee. Terms can move during this stretch: an appraisal below the expected value resizes the loan to the LTV limit, and weaker in-place income shrinks proceeds through DSCR sizing. Sponsors who model only the term-sheet proceeds get surprised at exactly the wrong moment.
Common sponsor mistakes at the term sheet stage
Three mistakes repeat across sponsors. The first is negotiating rate and proceeds while ignoring the covenant package: a cheaper loan with a tight DSCR covenant and full recourse can be a worse loan. The second is treating the expiration date as decoration. Term sheets lapse, and a sponsor who sits on a signed sheet while finishing diligence can find the pricing gone when they come back. The third is running the process from memory: three lenders at different stages, each with different open items, is exactly the kind of parallel workstream that quietly stalls when it lives in one person's inbox.
The fix for the third problem is structural. Track every lender conversation as its own record with a status, a next step, and the latest terms attached, and review the full financing picture at the same cadence as the deal pipeline itself.
If underwriting confirms the deal, the commitment letter follows, binding this time, and loan documents and closing come after. The term sheet's real function is now visible in hindsight: it was the document that let both sides spend serious money on underwriting with a shared understanding of the deal they were trying to close.
Browse more playbooks, templates, and definitions in the MotionCRE resource library.
- 1.PropertyMetrics, How Term Sheets Work for Commercial Real Estate Loans (accessed 2026-07-01)
- 2.Janover Pro, What Is a Term Sheet in Commercial Real Estate? (accessed 2026-07-01)
- 3.First National Realty Partners, Term Sheet vs. Commitment Letter (accessed 2026-07-01)