TI/LC Reserve Facilities, Future Funding & Leasing Holdbacks in CRE
Leasing vacant commercial space in office buildings, shopping centers, and industrial facilities requires substantial capital for Tenant Improvements (custom interior build-outs) and Leasing Commissions paid to commercial brokers. To finance these leasing costs without depleting sponsor cash, lenders structure dedicated Tenant Improvement and Leasing Commission (TI/LC) reserve facilities.
Indicative Underwriting Matrix
TI/LC facilities are subject to pre-approved leasing guidelines. Leases deviating from approved rental rates or concessions require formal lender approval.
How Pre-Approved Leasing Guidelines Streamline TI/LC Draws
In bridge and value-add loan agreements, the lender and borrower negotiate an exhibit called "Pre-Approved Leasing Guidelines." This schedule specifies the minimum net effective rental rate, maximum tenant improvement allowance per square foot, maximum leasing commission percentage, and minimum lease term (e.g., minimum 5 years) that the landlord can execute without requesting lender consent.
When a new lease meets these pre-approved metrics, the borrower can execute the lease immediately, construct the tenant build-out, and submit invoices to the TI/LC reserve facility for rapid reimbursement without administrative delays.
Draw Protocols for Releasing TI/LC Escrow Funds
To disburse funds from the TI/LC reserve facility, the lender requires verification that the capital has been legitimately spent to secure tenant occupancy:
1. For Tenant Improvements: Contractor itemized invoices, AIA G702 payment applications, unconditional mechanics lien waivers, and proof of tenant inspection approval.
2. For Leasing Commissions: Fully executed broker commission agreement, broker invoice, and canceled check or wire receipt demonstrating the landlord paid the leasing broker.
Frequently Answered Financing Questions
Verified answers to common borrower and broker inquiries regarding loan sizing, guidelines, and execution.
What is a TI/LC reserve in commercial real estate financing?
A TI/LC reserve is a future funding facility provided by a commercial lender to pay for tenant build-outs (Tenant Improvements) and broker leasing commissions on new leases.
Instead of the borrower paying out-of-pocket for expensive space alterations, the lender reimburses these costs from the committed loan facility upon lease execution.
Submit Financing Scenario →Do borrowers pay interest on undisbursed TI/LC reserves?
Under standard non-Dutch financing, borrowers pay interest only on TI/LC funds after they are drawn and disbursed; undisbursed reserve funds accrue zero interest.
However, lenders may charge a small unused facility fee (0.25%–0.50%) on the committed, undisbursed balance to reserve capital.
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