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Deal Diligence and Tax Strategy

The things that actually delay closings are rarely the loan. They are a 1031 clock nobody started, an environmental report ordered a month late, or a sizing test the borrower had never heard of. This page covers the mechanics worth knowing before you are under contract.

What this page covers

  • 1031 Exchange Financing
  • Cost Segregation
  • Debt Yield
  • Phase I ESA & Commercial Due Diligence

What these files have in common

Tax treatment is for your CPA and counsel — we will not opine on your tax position. What we can tell you is how each of these items changes a lender’s timetable and the proceeds a deal supports.

Our minimum loan is $200,000. We are a direct commercial lender working across the 43 states we serve, in business since 1998. Rates are quoted on the file rather than published — call and we will price the deal in front of us.

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1031 Exchange Financing

1031 Exchange Financing:
Replacement Property Loans That Close on the Clock

A 1031 exchange lives or dies on two deadlines — 45 days to identify replacement property, 180 days to close. Most banks' commercial underwriting timeline doesn't respect either one. We move fast enough to close inside your exchange window, on real estate that actually fits your reinvestment requirement.

65-75%
Max LTV
Quoted on your deal
Rate Range
2-3 wks
Typical Close
45 / 180
Day Exchange Deadlines

The math behind a 1031 exchange is unforgiving on timing: miss the 45-day identification window or the 180-day close and the entire tax deferral collapses, triggering the capital gains bill you were exchanging to avoid. Conventional commercial lenders routinely take 45-60+ days just to clear underwriting — before you're anywhere near closing. We structure and close replacement-property financing specifically around the exchange calendar, not our own convenience.

How We Work Inside Your Exchange Timeline

1

Pre-Qualify Early

Get financing terms lined up before or during your 45-day identification window

2

Identify Property

We help evaluate whether a target replacement property fits your loan-to-value and debt needs

3

Fast Underwriting

Streamlined process built to clear before your 180-day close deadline, not against it

4

Coordinated Close

We work directly with your Qualified Intermediary to keep exchange funds properly structured through closing

What Makes This Work

Qualified Intermediary already engaged and exchange properly opened before the relinquished property closes
Replacement property identified in writing within the 45-day window, per IRS rules
Debt and equity on the replacement property equal to or greater than the relinquished property (to fully defer gain)
Property type and condition CLOT can underwrite quickly — no exotic asset class needing extensive specialty review

Common Ways Exchanges Miss Deadlines

Lender underwriting timeline alone exceeds what's left in the 180-day window
Replacement property under-leveraged relative to relinquished property, leaving taxable "boot"
Financing sought only after the 45-day identification period has already started, leaving no cushion
Appraisal, title, or environmental issues discovered late with no time buffer to resolve them

Talk to Us Before You Start the Clock

The single biggest mistake in a financed 1031 exchange is lining up financing after the 45-day clock has already started. Loop us in as soon as you're contemplating a sale — even before you have a replacement property identified — so financing is never the reason an exchange fails.

Running a 1031 Exchange on a Commercial Property?

Tell us your timeline and target replacement property. We'll tell you what we can close and by when.

Start Your Exchange Financing →
Environmental Due-Diligence Guide

Phase I ESA & Commercial Due Diligence:
What Every Texas CRE Buyer Should Know

A Phase I Environmental Site Assessment is one of the least understood — and most deal-killing when skipped — steps in a commercial real estate purchase. Almost every commercial lender requires one before closing, and knowing what it actually checks, what triggers a costlier Phase II, and how to budget for it up front keeps a good deal from stalling at the worst possible moment.

$2K-$6K
Typical Phase I Cost
2-4 wks
Turnaround Time
180 days
Report Validity
~90%
Of CRE Deals Require One

A Phase I ESA is a records-and-inspection review, not soil testing — it examines historical property use, adjoining property use, regulatory database listings, and a physical site walk to identify Recognized Environmental Conditions (RECs) that could indicate contamination. It does not involve drilling or lab samples; that only happens if the Phase I flags something specific enough to escalate.

What Triggers Extra Scrutiny

Prior Industrial Use

Former gas station, dry cleaner, auto shop, or manufacturing site on the property or adjacent to it

Underground Storage Tanks

Existing or removed USTs, even decades old, showing up in state regulatory records

Adjacent Contamination

A neighboring property with an open environmental case that could migrate onto the subject site

Unusual Staining or Odors

Anything the site inspector physically observes during the property walk-through

Usually Clears Fast

Property has always been retail, office, or residential-adjacent use with no industrial history
No open regulatory database hits for the property or immediately adjacent parcels
No visible staining, odors, or distressed vegetation observed on the site walk
Seller can provide prior environmental reports showing a clean history

Likely Needs a Phase II

Former gas station, dry cleaner, or other use associated with common contaminants
Open or unresolved state environmental enforcement action on record
Visible staining, stressed vegetation, or chemical odor noted during inspection
Adjacent property with a documented, unaddressed contamination plume

Why This Matters for Your Financing Timeline

Lenders order a Phase I to protect against inheriting environmental liability tied to the collateral — a clean report is usually a routine, low-drama step, but a flagged REC that escalates to a Phase II can add 4-8 weeks and thousands of dollars right when a buyer is trying to close. Ordering the Phase I early, in parallel with other due diligence instead of after, is the single easiest way to protect a closing timeline.

Have a Deal Under Contract?

Send us the property and prior use history. We'll tell you what environmental due diligence to expect and how it fits your closing timeline.

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Investor Tax Strategy

Cost Segregation: Turning Your New Acquisition Into Faster Depreciation

Standard commercial real estate depreciates over 39 years, straight-line. A cost segregation study can reclassify a meaningful chunk of that basis into 5, 7, and 15-year property — accelerating the deductions into the years you actually need them.

When a commercial property closes, the IRS default is to depreciate the entire building over 39 years on a straight line — one number, divided evenly, no matter what's actually inside the walls. A cost segregation study is an engineering-based analysis that breaks the purchase price apart into its real components: structural building shell (39-year), but also land improvements like paving, landscaping, and site lighting (15-year), and personal property like specialized electrical, certain flooring, millwork, and equipment-dedicated wiring (5 or 7-year). Reclassifying even 20-30% of a purchase price into those shorter recovery periods can move a substantial depreciation deduction from year 20 of ownership into year one.

Why This Matters Right After Closing

The tax benefit is largest in the same year the property is placed in service — which is exactly when many investors are financing a new acquisition, funding a renovation, or absorbing a large debt service number for the first time. A cost segregation study run shortly after closing (or after a major renovation/build-out) front-loads real, deductible losses against other income in the years the investor is most likely to want them, rather than spreading a flat deduction evenly across four decades.

What Typically Qualifies for Faster Reclassification

Site Work

Paving, landscaping, exterior lighting

Specialty Electrical

Equipment-dedicated circuits and wiring

Interior Finish

Certain flooring, millwork, decorative fixtures

FF&E

Furniture, fixtures, and equipment tied to the property

This is general information, not tax advice — a licensed cost segregation firm and your CPA determine what actually qualifies for your specific property and structure the study to hold up under IRS scrutiny.

How This Connects to Financing

Cost segregation doesn't change your loan terms directly, but it changes the cash-flow picture behind the deal — accelerated depreciation can meaningfully offset taxable income in the early hold years, which is often exactly when debt service is highest relative to a property still stabilizing. We regularly work with investors coordinating an acquisition or refinance around a planned cost segregation study; if that's part of your plan, tell us up front so we can structure the closing timeline to support it.

Financing an acquisition and planning a cost seg study?

Tell us your timeline — we'll structure the closing to work alongside it.

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Underwriting Metrics

Debt Yield: The Metric Your Lender Cares About More Than You Think

DSCR and LTV get all the attention, but many commercial lenders size a loan around debt yield first — and it's the one metric that ignores interest rate entirely.

Debt yield is a simple ratio: net operating income divided by the loan amount. Unlike debt service coverage ratio, it doesn't care what your interest rate or amortization schedule looks like — it strips financing terms out entirely and asks one blunt question: if this lender had to foreclose and hold the property as a straight cash return, what yield would the loan amount actually produce? A $2,000,000 loan against a property generating $180,000 in NOI has a 9% debt yield, full stop, regardless of whether the note carries a 6% or 9% rate.

Debt Yield = Net Operating Income ÷ Loan Amount

That's exactly why lenders lean on it as a floor. DSCR can look healthy purely because rates are low or amortization is stretched to 30 years — debt yield can't be gamed the same way, since it never touches the rate or the amortization schedule at all. Most conventional and CMBS-style commercial lenders want to see a debt yield in the 8-10%+ range before they'll size a loan to full leverage; anything meaningfully below that and the loan amount typically gets trimmed until the ratio clears the floor, no matter how strong DSCR or LTV look on paper.

Why This Matters More in a Higher-Rate Environment

When rates rise, DSCR compresses on its own — the same NOI now has to cover a bigger debt service number. Debt yield doesn't move with rate at all, which means in a rising-rate market it increasingly becomes the binding constraint on how much a property can actually borrow, even when DSCR still technically pencils. Borrowers who only model DSCR sometimes get surprised at term sheet stage when the loan amount gets sized down to satisfy a debt yield floor they never checked.

Debt Yield vs. the Other Two Ratios

LTV

Measures loan against property value — moves with appraisal/cap rate assumptions

DSCR

Measures NOI against actual debt service — moves with rate and amortization

Debt Yield

Measures NOI against loan amount only — ignores rate and amortization entirely

We size every commercial loan against all three ratios up front, not just the one that happens to look best — so the number on your term sheet is the number that actually closes, not one that gets re-traded once a debt yield floor shows up in underwriting.

Want a real number, not just a ratio lesson?

Send us the property's NOI and target loan amount — we'll tell you exactly where debt yield lands and what that means for your sizing.

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