To get a non-recourse loan, you qualify the property rather than yourself: line up a stabilized, income-producing asset that meets the lender’s loan-to-value, debt service coverage, and debt yield thresholds, hold it in a single purpose entity built for bankruptcy isolation, and apply through an agency program, a CMBS conduit lender, or a life insurance company. Traditional retail banks rarely write this kind of loan because their underwriting depends on personal guarantees, and the whole point of a non-recourse structure is that the lender agrees to look only to the collateral if things go wrong.
Because the lender absorbs nearly all the downside risk, the bar for the property is higher, the borrowing entity has to be structured a specific way, and the document package is heavier than a conventional commercial mortgage. Rates typically run 0.5% to 2% above comparable recourse financing, and loan-to-value is capped between roughly 50% and 70% of appraised value. Expect to bring meaningful equity.
What the Property Has to Show
Underwriting focuses almost entirely on the asset’s financial performance. Three ratios do most of the work.
Loan-to-Value Ratio
Lenders keep LTV between roughly 50% and 70% of appraised value. A $10 million property at 65% LTV supports a $6.5 million loan; you bring the remaining $3.5 million. Agency lenders like Fannie Mae calculate LTV based on stabilized value, which can help if the property hasn’t yet reached full occupancy.1Fannie Mae. Near-Stabilization Financing
Debt Service Coverage Ratio
DSCR measures whether the property’s net operating income can cover the debt payments. Most non-recourse lenders want at least 1.25, meaning $1.25 of NOI for every $1.00 of debt service. Fall below that and the deal gets restructured or rejected.
Debt Yield
Debt yield is NOI divided by the total loan amount. It gives lenders a return snapshot that isn’t distorted by low rates or aggressive amortization. Most programs require 8% to 10%. A property earning $800,000 in NOI on a $10 million loan produces an 8% debt yield, right at the bottom of the acceptable range.
Property Type and Stabilization
Not every asset qualifies. Lenders favor income-producing properties with predictable cash flow: multifamily housing, industrial warehouses, and retail centers anchored by creditworthy tenants. Most programs require the property to be stabilized, meaning strong occupancy and no significant repair needs. Fannie Mae’s near-stabilization program is one exception, offering non-recourse permanent financing for newly built multifamily properties still in lease-up, provided they’re expected to reach target occupancy within roughly 120 to 150 days.1Fannie Mae. Near-Stabilization Financing
Set Up a Single Purpose Entity to Hold the Property
Most non-recourse lenders require the borrower to be a single purpose entity: a legal entity that owns one property, operates one business, and carries no outside liabilities. The point is bankruptcy isolation. If the principals hit financial trouble elsewhere, those problems can’t pull the property into a bankruptcy the lender didn’t sign up for.
SPE covenants restrict the entity from commingling assets with other businesses, guaranteeing anyone else’s debts, or acquiring property beyond the mortgaged asset. The entity must hold itself out as separate, keep its own books, and deal with affiliates only at arm’s length.2Fannie Mae. Modifications to Multifamily Loan and Security Agreement (SPE Recourse) Unsecured trade payables are capped at a small percentage of the original loan balance.
For loans that will be securitized through commercial mortgage-backed securities, the requirements go further. An independent director or independent manager has to sit on the entity’s board, and that person’s vote is required before the entity can file for bankruptcy or take any insolvency action. For SPE limited partnerships, the general partner itself must have an independent director.3S&P Global Ratings. U.S. CMBS Legal and Structured Finance Criteria: Special-Purpose Bankruptcy-Remote Entities If the borrower is a single-member LLC, the operating agreement typically must include a springing member provision so the entity survives even if its sole member disappears.
Get this structure right before you apply. Retrofitting an existing entity to meet SPE covenants after underwriting has started will slow the deal down.
Where to Apply
Skip the retail commercial banker on the corner. The lenders who actually write non-recourse paper fall into four categories.
- Agency lenders (Fannie Mae and Freddie Mac). Non-recourse financing for multifamily properties through their Delegated Underwriting and Servicing (DUS) programs. Minimum loan sizes typically start at $1 million for smaller programs and $10 million for products like near-stabilization financing.1Fannie Mae. Near-Stabilization Financing
- CMBS conduit lenders. They originate loans, pool them, and sell them as bonds. Because the loan gets securitized and the originator moves on, the non-recourse structure is standard. CMBS covers a wider range of property types than agency, including retail, office, and hospitality.
- Life insurance companies. Conservative lenders that favor low-leverage deals on high-quality properties. Their LTV caps run lower, closer to 50% to 60%, but their rates are competitive.
- IRA custodian-approved lenders. A handful of lenders specialize in non-recourse loans for self-directed IRAs. These are required because IRS rules treat a personal guarantee on an IRA-held asset as a prohibited transaction between the plan and a disqualified person, so the loan must be structured with the IRA itself as the borrower and no personal credit behind it.4Office of the Law Revision Counsel. 26 U.S. Code 4975 – Tax on Prohibited Transactions
Even though the underwriting focus stays on the property, many lenders still require the loan guarantor (usually the SPE’s principal) to meet a minimum net worth threshold. That isn’t personal liability in the ordinary course; it’s because the carve-out guarantees discussed below need someone creditworthy standing behind them.
Documentation to Assemble Before You Apply
Non-recourse underwriting is document-heavy because the lender has no personal fallback. Have the following ready before you submit.
- Appraisal. A certified appraiser produces a valuation meeting the Uniform Standards of Professional Appraisal Practice. Commercial appraisal fees generally run $2,000 to $4,000, with complex or high-value assets running higher.5eCFR. 12 CFR Part 34 – Real Estate Lending and Appraisals
- Phase I Environmental Site Assessment. Identifies potential contamination from prior industrial use, underground storage tanks, or hazardous materials on or near the property. Costs range from roughly $1,600 to $6,500 depending on property size and risk level, with former industrial sites or gas stations at the upper end.
- Rent rolls and operating statements. At least three years of detailed income and expense history, plus current tenant leases, rental rates, and vacancy data. The lender uses these to project future NOI and stress-test debt coverage.
- Organizational documents. The SPE’s operating agreement or partnership agreement, articles of organization, and any amendments. These must include the separateness and bankruptcy-remote covenants the lender requires.
- Beneficial ownership information. Lenders need to identify everyone who controls or owns 25% or more of the borrowing entity for their anti-money laundering compliance. The Corporate Transparency Act’s direct reporting requirements to FinCEN were narrowed in 2025 to cover only foreign reporting companies, so domestic entities no longer file beneficial ownership reports with FinCEN, but lenders still collect this information independently under Bank Secrecy Act obligations.6U.S. Department of the Treasury. Treasury Department Announces Suspension of Enforcement of Corporate Transparency Act
Most lenders take submissions through a secure online portal. Organize everything into clearly labeled folders before uploading. A scattered submission is the fastest way to get pushed to the bottom of the queue.
From Application to Closing
Once your package is in, the deal moves through three stages.
During underwriting, the lender’s credit committee verifies your income and expense data, orders third-party reports if you haven’t already provided them, and stress-tests the property under scenarios like rising vacancy, interest rate increases, and unexpected capital expenditures. This stage runs 30 to 90 days depending on the lender and the deal’s complexity.
If the committee approves, the lender issues a commitment letter specifying loan amount, interest rate, term, amortization schedule, prepayment provisions, and any pre-closing conditions. You sign the commitment and pay a fee, typically $2,500 to $10,000 depending on loan size, to lock in terms and move toward closing.
At closing, a title company or neutral closing agent handles signing and fund transfer. The lender’s counsel records a deed of trust or mortgage in the county land records, establishing a first-priority lien. A UCC-1 financing statement is filed with the Secretary of State to cover fixtures, equipment, and other personal property tied to the real estate. That UCC-1 filing stays effective for five years and gives public notice of the lender’s claim.7Cornell Law Institute. UCC 9-515 – Duration and Effectiveness of Financing Statement
Read the Carve-Outs Before You Sign
Non-recourse doesn’t mean zero accountability. Every non-recourse loan includes carve-out provisions, commonly called “bad boy” guarantees, that restore personal liability if the borrower engages in specific misconduct. Typical triggers include fraud or misrepresentation, misapplication of rents or property income, unauthorized transfers of the collateral, filing a voluntary bankruptcy petition, unauthorized changes in ownership structure, and taking on additional debt beyond what the loan documents allow.
Springing recourse goes further. Standard carve-outs might make a guarantor liable for losses the lender suffers from misconduct; springing recourse can make the guarantor liable for the entire outstanding loan balance. A voluntary bankruptcy filing is the most common full-recourse trigger, because lenders view it as weaponizing the court system to delay foreclosure. Some agreements also spring full recourse if DSCR drops below a specified floor for consecutive quarters, though that partial trigger is less universal.
A carve-out you overlook can turn what you thought was a non-recourse loan into full personal liability overnight. Have counsel walk through these provisions line by line before you sign.
Prepayment Restrictions to Factor Into Your Plan
Non-recourse loans almost always include prepayment penalties or lockout periods. This protects the investors who ultimately hold the debt, particularly in CMBS loans where cash flows are committed to bondholders for a specific term.
Most CMBS loans impose a hard lockout of two to five years during which no prepayment is permitted. After the lockout expires, you’ll face one of two penalty structures:
- Yield maintenance. You pay a premium equal to the present value of the interest income the lender loses by the early payoff. The premium is based on the difference between your loan’s interest rate and the current Treasury yield for the remaining term. The higher your rate is relative to Treasuries, the more expensive this gets.
- Defeasance. Instead of paying cash to retire the loan, you buy a portfolio of government securities, usually Treasuries, that replicate the exact payment stream the lender expected. The loan stays in place technically, but the collateral switches from your property to the bond portfolio. Defeasance frees the property from the lien, but the cost of assembling the replacement securities plus legal and administrative fees can be substantial.
Work the prepayment math against your hold period before signing. If you expect to sell or refinance within a few years, the penalty could wipe out the benefit of the non-recourse structure entirely.