{"id":35654,"date":"2023-04-10T06:41:51","date_gmt":"2023-04-10T13:41:51","guid":{"rendered":"https:\/\/www.yardi.com\/blog\/?p=35654"},"modified":"2026-02-25T08:19:29","modified_gmt":"2026-02-25T16:19:29","slug":"cre-borrowing-risk","status":"publish","type":"post","link":"https:\/\/www.yardi.com\/blog\/cre-borrowing-risk\/","title":{"rendered":"Best practices to minimize CRE borrowing risk"},"content":{"rendered":"\n
\"Debt<\/a><\/figure>\n\n\n\n

Covenants, which are agreements between a debtor (borrower) and creditor or lender, are a staple of commercial real estate loans. Designed to reduce risk for lenders, loan covenants commit the borrower to execute certain behaviors, such as making principal and interest payments when due, and avoid others, such as selling the assets that underpin the loan without first repaying it in full.\u00a0<\/p>\n\n\n\n

Minimize risk, starting today<\/h2>\n\n\n\n

Certain economic conditions, such as falling portfolio values, high operational expenses and rising vacancy rates, increase the risk of violating a loan covenant by being late on payments or reporting or by failing to meet financial benchmarks.\u00a0<\/p>\n\n\n\n

One example of a covenant breach is a CFO missing a debt service ratio, which measures the cash flow available to pay current debt obligations. That could result in the lender calling the loan, forcing the company to obtain financing to repay the called loan. <\/p>\n\n\n\n

Avoiding such a scenario requires transparency in lender requirements, deep understanding of the factors that influence debt such as forecasts and rents. \u201cCovenant tracking is a big trend now. On the borrower side, the emphasis is on transparency and getting insight into debt portfolios,\u201d observes Chris Barbier, senior manager of investment management for Yardi. <\/p>\n\n\n\n

How can borrowers minimize risk and maximize efficiency in managing their loan covenants? One of the most reliable ways involves using one technology platform<\/a> rather than multiple systems for loan, asset management and investment activities. <\/p>\n\n\n\n

\u201cIf you\u2019ve got an operating property, which is usually the collateral for the loan in a system, and then you\u2019ve got loans being tracked somewhere else, the two processes are not aligned. A tightly integrated solution allows for better transparency and risk management,\u201d Barbier says.\u00a0<\/p>\n\n\n\n

A single technology system that centralizes all loan information and automates processes helps borrowers by: <\/p>\n\n\n\n