Banking and Treasury for Real Estate Funds: Property-Level Cash, Debt Financing, and Lender Relationships

Banking and treasury management in real estate funds differs fundamentally from traditional corporate or financial services treasury due to the asset-level financing structures, property-specific cash management accounts, construction and development loan administration when applicable, and lender relationship management across potentially dozens of individual property loans. The CFO coordinates fund-level cash management while overseeing property-level banking, ensuring adequate liquidity for acquisitions and capital improvements, managing debt refinancing opportunities, and maintaining productive lender relationships that enable competitive financing terms.

Real estate treasury spans multiple domains including fund-level operating accounts, property-level operating and reserve accounts, acquisition bridge financing, construction and development lending when applicable, permanent mortgage financing, mezzanine and preferred equity when used, and subscription line credit facilities providing bridge capital between commitments and capital calls. Each financing type presents distinct operational and covenant requirements demanding specialized expertise and active management.

Fund-Level Cash Management

The fund maintains operating accounts for capital calls, acquisition funding, and distributions separate from property-level accounts.

Operating Account Structure

Fund operating accounts receive capital call proceeds, pay acquisition costs and fund-level expenses, receive disposition proceeds and property cash sweeps, and fund investor distributions. Account structure typically includes primary operating account, subscription proceeds account for capital calls, and distribution disbursement account segregating funds for investor payments. The CFO maintains cash forecasts projecting capital needs from upcoming acquisitions, capital improvements, and operating deficits versus availability from capital calls and property distributions, ensuring adequate liquidity without excessive idle cash.

Subscription Line Credit Facilities

Many funds establish subscription lines secured by uncalled capital commitments, providing bridge financing avoiding frequent small capital calls. Lines enable funding acquisitions immediately while calling capital quarterly in larger amounts, reducing administrative burden and improving investor experience. Facility terms include commitment amounts based on investor commitment quality, interest rates typically floating at SOFR plus spreads, advance rates against uncalled commitments (commonly 60-80 percent), and covenants requiring maintaining qualified commitments above minimums. The CFO manages line draws and repayments, monitors covenant compliance, and negotiates terms leveraging fund performance and lender competition.

Property-Level Banking

Each property maintains separate operating accounts with reserve accounts required by lenders.

Property Operating Accounts

Property operating accounts receive rental collections, pay property expenses and debt service, and sweep excess cash to fund accounts after reserve funding. Property managers typically control operating accounts under management agreements, with the CFO receiving statements and monitoring activity. Monthly reconciliation between property manager reports and bank statements verifies all transactions are appropriately recorded and cash balances reconcile, identifying discrepancies requiring investigation.

Reserve Accounts

Property lenders require reserve accounts funded for property taxes, insurance premiums, capital improvements, and tenant improvements or lease commissions. Reserve requirements are calculated based on projected annual costs divided by 12 or other lender methodologies. Adequate reserve funding avoids default conditions, while reserve releases for authorized purposes require lender approval and documentation. The CFO tracks required reserve balances, actual balances, and upcoming reserve releases needed for capital projects, coordinating with lenders to obtain approvals timely.

Acquisition and Bridge Financing

Property acquisitions often utilize bridge financing providing short-term capital before permanent financing implementation.

Bridge Loan Structures

Bridge loans fund acquisitions with higher leverage than permanent financing allows, providing 18-36 month terms enabling property stabilization before permanent loan takeout. Terms include floating interest rates at SOFR plus 3-5 percent depending on property quality and borrower relationship, extension options for 6-12 months enabling flexibility if stabilization takes longer than projected, and interest reserve accounts funding debt service during lease-up avoiding negative cash flow. Bridge lenders specialize in transitional assets with lease-up risk or renovation requirements beyond permanent lender comfort levels. Successful bridge refinancing into permanent loans reduces financing costs and extends maturities, improving returns.

Hard Money and Private Lenders

Value-add acquisitions may require hard money lenders accepting higher risk at higher rates (8-12 percent) with shorter terms. Private debt funds and specialty finance companies fill this niche. Due diligence on private lenders includes assessing lender financial capacity to fund commitments, reference checking with other borrowers on lender performance, understanding all fees including origination, exit, and extension fees, and reviewing loan documents carefully for unusual provisions or penalties.

Construction and Development Financing

Development and major renovation projects require construction loans with draw procedures and completion guarantees.

Construction Loan Administration

Construction loans fund projects in stages as work completes, requiring comprehensive draw administration. Draw requests include contractor invoices and lien waivers, architect certification of work completion, lender inspection and approval, and release of funds to contractors or borrower accounts. The CFO coordinates draw processes ensuring documentation completeness, timely submission enabling smooth contractor payments, and accuracy of requests matching actual work completed. Draw delays can disrupt construction schedules as contractors await payment, making efficient administration essential. Interest reserves funded at loan closing pay debt service during construction avoiding cash outflows before project cash flow commences.

Completion Guarantees

Construction lenders require guarantees ensuring project completion if construction costs exceed expectations or construction financing proves insufficient. GP entities or principals provide guarantees covering cost overruns up to specified limits or unlimited in some cases. Guarantee release occurs upon project completion, certificate of occupancy issuance, and satisfaction of lease-up hurdles demonstrating project viability. The CFO monitors project budgets and costs against guarantee exposure, escalating overrun risks to management requiring decisions about additional equity versus guarantee funding.

Permanent Mortgage Financing

Stabilized properties use permanent mortgages with longer terms (5-10 years) and lower rates than bridge financing.

Permanent Loan Selection and Terms

Permanent financing options include banks offering floating rate loans with lower leverage (65-70 percent LTV), life insurance companies providing fixed rate loans at higher leverage (70-75 percent LTV) with prepayment restrictions, CMBS lenders offering fixed rate loans with strict servicing and modification limitations, and agency lenders (Fannie Mae, Freddie Mac) for multifamily properties at competitive terms with flexible prepayment and assumption features. Selection depends on financing needs, prepayment expectations, and property type eligibility. The CFO evaluates alternatives soliciting proposals from multiple lender types, comparing all-in costs including interest rates, fees, and prepayment penalties, analyzing covenant terms and operational restrictions, and considering financing flexibility for future refinancing or property sale.

Loan Covenant Monitoring

Permanent loans include financial covenants requiring quarterly or annual monitoring. Common covenants include debt service coverage ratios (DSCR) typically 1.20-1.35x ensuring NOI exceeds debt service by required margins, loan-to-value limits preventing property value declines from violating leverage restrictions, and cash sweep triggers requiring excess cash deposits to lender accounts when performance falls below thresholds. The CFO calculates covenant compliance quarterly, forecasting potential violations and implementing corrective actions when necessary including revenue enhancements, expense reductions, or equity contributions to cure violations. Proactive lender communication when violations appear likely facilitates waiver negotiations avoiding technical defaults.

Refinancing Strategies

Property stabilization, market cap rate compression, or interest rate changes create refinancing opportunities enhancing returns.

Cash-Out Refinancing

Refinancing at higher loan amounts than existing debt enables cash distributions to investors, returning capital without property sale. Cash-out success requires property value appreciation through market cap rate compression, NOI growth from operations, or both, enabling higher loan amounts at acceptable leverage levels. Distributed proceeds enhance investor IRRs through earlier capital return, improving time-weighted returns even if total returns remain unchanged. The CFO evaluates refinancing economics comparing interest costs on incremental debt versus benefits of capital return considering tax impacts from debt proceeds distribution. Refinancing success depends on timing market conditions when financing is available at attractive terms.

Rate and Term Refinancing

Refinancing to reduce interest rates or extend maturity enhances property cash flow and defers maturity risk. Rate reduction refinancing makes sense when interest rates decline substantially below existing loan rates, justifying refinancing costs through interest savings. Term extension refinancing addresses near-term maturities enabling hold period extension without refinancing risk. The CFO calculates breakeven periods showing how long interest savings take to recover refinancing costs, determining whether remaining hold period justifies refinancing expense.

Lender Relationship Management

Strong lender relationships provide access to competitive financing enabling return optimization and execution certainty.

Relationship Banking Development

The CFO cultivates relationships with multiple lender types building access to diverse financing sources. Relationship development includes regular meetings with lenders updating on fund activities and pipeline, transactions generating fee revenue for lenders through closings and refinancings, prompt responses to lender requests demonstrating professionalism, and invitation to fund events and property tours strengthening personal connections. Strong lender relationships provide benefits including preferential pricing through commitment to relationship lenders, faster execution through established documentation and trust, and greater flexibility during difficult periods if covenant issues or property challenges arise.

Key Takeaways

• Property-level banking creates decentralized treasury: Each property maintains separate operating and reserve accounts requiring coordinated oversight and consolidated cash visibility across the portfolio.
• Subscription line facilities provide capital efficiency: Lines secured by uncalled commitments enable immediate acquisition funding while reducing capital call frequency improving investor experience.
• Reserve accounts require active management: Lender-required reserves for taxes, insurance, capex, and TIs demand tracking, adequate funding, and release coordination for authorized expenditures.
• Bridge financing enables transitional acquisitions: Short-term higher-leverage loans fund value-add deals beyond permanent lender appetite, requiring successful refinancing into permanent loans after stabilization.
• Construction loan administration demands coordination: Draw requests, lien waivers, inspections, and completion guarantees require systematic processes ensuring smooth construction financing and contractor payments.
• Covenant monitoring prevents default: Quarterly DSCR, LTV, and cash sweep calculations identify potential violations early, enabling corrective action or proactive lender communication.
• Refinancing opportunities enhance returns: Cash-out refinancing distributing proceeds and rate/term refinancing reducing costs or extending maturities improve investor returns when timed appropriately.
• Lender relationships provide competitive advantages: Cultivated relationships across multiple lender types enable financing optimization, faster execution, and greater flexibility across market conditions.