Nonrecourse Debt

Nonrecourse debt is a loan where the lender can collect only from the collateral, not from the borrower's other assets. It is common on larger commercial property. Because the property is the lender's only source of repayment, NOI gets heavy scrutiny when the loan is underwritten.

A nonrecourse lender is betting on the building's income. It will usually recalculate NOI from its own view of market rent, vacancy and expenses, then size the loan from that figure. A seller's NOI that omits management or reserves will be marked down.

Most nonrecourse loans include carve-outs, sometimes called bad boy clauses, that make the borrower personally liable for fraud, misapplied funds and similar acts. Terms differ by lender, so read them closely.