Ability-to-Hold Underwriting Rule
Structure debt, equity, and reserves to survive the full property cycle
- Difficulty
- Advanced
- Time to result
- ~ongoing to results
- Steps
- 6
- Confidence
- 99%
Reinberg's central commercial-real-estate rule is the ability to hold. Unlike residential property, which he associates strongly with schools and location, he says commercial success depends on surviving cycles. The underwriting process therefore asks whether the owner has enough equity, reserves, and loan flexibility to carry the property through rising rates, compressed values, or a period when refinancing is unavailable. Reinberg historically used 60% to 75% loan-to-value but says he now considers roughly 50% to 60% in the current market and tries not to exceed 65%. He also seeks long-term financing against long leases and negotiates prepayment flexibility. The rule trades some projected return for durability: use less leverage, preserve negotiating control, and protect investor capital before pursuing maximum upside.
Origin
Reinberg said early mezzanine-debt deals taught him that roughly 85% leverage created problems throughout the capital stack when the market turned.
Core principles
- 01Survival through the cycle matters more than maximizing leverage
- 02More equity reduces refinancing and workout pressure
- 03Loan duration should align with lease and holding needs
- 04Reserves preserve control when values or financing deteriorate
- 05Investor capital protection comes before a higher projected return
How to run it
- 1
Model the cycle
Test what happens if rates rise, values compress, refinancing disappears, or income weakens during the hold.
Pro tip Underwrite for the difficult period, not only the acquisition date.
Watch out A good asset can still fail under a brittle capital structure.
- 2
Choose conservative leverage
Use enough equity to preserve control and reduce the chance of lender pressure during a downturn.
Pro tip Reinberg describes 50% to 60% leverage as attractive in the discussed market and tries not to exceed 65%.
Watch out The transcript does not present one universal leverage ratio for every asset.
- 3
Fund the reserves
Hold sufficient reserves or repayment capacity to carry the asset while the market is unfavorable.
Watch out Do not rely on immediate refinancing as the only way through a cycle.
- 4
Align the loan
Match financing duration and amortization to the lease profile, property type, and intended holding period.
Pro tip Reinberg seeks at least ten years of financing against 12- or 15-year leases.
Watch out Short-term financing against an aggressive purchase can create a maturity problem.
- 5
Preserve exit flexibility
Negotiate prepayment terms that do not make a later sale unnecessarily expensive.
Pro tip Consider a limited lockout or a declining prepayment schedule.
- 6
Put investors first
Accept a lower return when necessary to protect investor capital and keep the property resilient.
Watch out Higher projected returns do not compensate for leverage that the asset cannot safely carry.
In the wild
On a deal with a short-term lease, a lender proposed recourse if the tenant did not renew. Reinberg countered by reducing leverage from 65% to 50% and contributing more equity so the lender could remain protected without that recourse provision.
→ Lower leverage created another path to acceptable financing terms.
As a younger investor, Reinberg combined a first mortgage with mezzanine debt to reach about 85% leverage and reduce the equity he needed to raise. When the market turned, he found that the structure forced difficult conversations with lenders and investors.
→ He adopted the rule that more equity creates fewer problems.
Common mistakes
Maximizing leverage
Reducing the equity raise can look attractive while leaving too little room for a market turn.
Mismatching debt and leases
Short financing against long property exposure can force refinancing at the wrong point in the cycle.
Underfunding reserves
Without reserves, the owner loses the ability to wait through weak values or unavailable refinancing.
Is it for you?
Best for
It is best for property buyers choosing leverage, reserves, and loan terms before an acquisition.
Not ideal for
It is not ideal for buyers whose strategy depends on a quick sale or optimistic refinancing to remain solvent.
From the transcript
“in commercial real estate it's the ability to hold”
“I need to have enough reserves or the ability to hold the ride through say a period like 2023”
“more Equity Less Problems be conservative”
From the episode
Trailblazing Wealth ft. Visionary Ben Reinberg
Visionary Ben Reinberg