The Numbers Game: How Proper CRE Loan Sizing Generates More Deals

For banks and alternative lenders of commercial real estate (CRE) debt, sizing is a numbers game. For every 100 deals that originators size, perhaps 5% materialize into opportunities that meet their lending parameters. Borrowers are aggressively seeking the most capital at the best terms and the lowest rate. In the gap between that ask and execution, careful analysis must happen. This is where sizing comes in. 

Sizing is a nuanced preliminary analysis at the beginning of the deal that generates an underwriting model and summary. Performed by knowledgeable, experienced CRE professionals, proper sizing positions originators to make better, faster decisions, do more deals and build long-lasting borrower relationships.    

We recently spoke with Jen Cleare, Senior Director, Strategic Advisory Solutions, and Kevin Garmon, Director, Strategic Advisory Solutions, about the benefits and risks of proper sizing, and the role artificial intelligence may play in the future. 

What’s the first step in properly sizing a loan?  

JC: People think sizing is about simply entering rent roll and financial statement data into a model and then issuing a term sheet based on a few steps. But there's much more to it. Sizing requires looking at the entire deal – all aspects of the transaction – to assess risk. Lenders need to understand if the borrower and the underlying collateral are creditworthy and whether the cash flow supports the loan size. We bring stability to this preliminary phase and arm the originator to confidently bid the deal and negotiate terms. The better our execution, the more quickly the originator can make decisions – and that’s critical, because time kills deals. 

KG: Unlike residential properties, CRE properties are complex and consist of multiple elements – like building size and layout, tenant mix, lease terms and property type – all of which need to be understood holistically. This requires a comprehensive review of all the diligence, identifying key factors, asking targeted questions and finally tying all the data together. The foundational analysis completed when sizing a loan provides a full picture of the property and potential debt it can support. For example, you might have a large-scale office complex with multiple buildings and a diverse tenant mix with varying lease terms.  We digest all of it, provide a deliverable, and equip the originator to make a decision. And we do this with a 24-hour turnaround.   

Talk about the nuances that must be addressed when sizing a loan.  

JC: We typically receive a broker's package which includes a summary of the ask, information about the property and sponsor and market color. With some requests we might receive a separate rent roll and financial statements in addition to the broker package. Sometimes those documents conflict with each other, or information is missing or outdated. An example would be tenants referenced in the broker package are not included in the source rent roll that was provided separately. Or the rent roll details leases that are expiring in 12 months but the broker package provided a proforma cash flow that includes that tenant rent beyond lease expiration. We will underwrite gross potential rent to accurately reflect the tenancy at the property. Our goal is to conclude an underwritten cash flow that, based on the information provided, reflects the property’s current performance, while considering its financial history and current and future market conditions.  

KG:  Loan sizing is not simply supplying a loan-to-value ratio or debt service coverage ratio — it's about evaluating the diligence and layering in market conditions. For example, while a borrower may request a five-year term with a 75% LTV, the originator might ask us to also assess the transaction under a 10-year term and a more conservative 65% LTV. This helps evaluate how the deal performs across different durations and leverage points. Other key components considered include stabilized vs. in-place cash flow, future capital expenditures, tenant rollover risk, interest rate assumptions (fixed vs. floating) and exit strategy (refinance, sale, etc.) – all impact loan sizing. Market volatility may also prompt stress testing – for instance, modeling higher cap rates or lower rent growth. Ultimately, thoughtful loan sizing involves a balance between the borrower’s desired proceeds and the lender’s need to mitigate risk. That’s why it’s critical to fully evaluate beyond the initial ask from the sponsor for a loan amount or pre-determined LTV.      

JC: Sometimes we’ll find crucial information buried in the package, for example, a note says the property has a ground lease that expires in three years with no option to renew. You might have great cash flow but if you don't have the ability to rent the land underneath the building, you don't have a deal. We’ll immediately stop and ask for more information, because that renewal issue might kill the deal straight away. 

What about nuances between lenders? 

JC: Every lender has its own model and guidelines, its own secret sauce. Sometimes different originators within the same lending platform like to see things presented in a certain way because they must sell the deal internally. Additionally, our client’s internal credit parameters might change based on market conditions and we adapt to that as well. We act as an extension of their team and provide that customization, so when they when they push it up the chain, it's their work. 

KG: Customization plays a crucial role because no two originators are exactly alike. The differences may seem subtle at first: a specific data point here, a preferred format there, but consistency with these small details helps win deals. When originators can consistently get deals structured exactly the way they need them, they can respond faster with higher confidence, resulting in winning more deals. That’s where we help them gain a real edge.  

JC: The other benefit of our tailored support is if an originator is new and just starting his or her shop, or if it's an existing outfit starting a CRE platform, they can use SitusAMC to help build out their business. 

Talk about the importance of getting sizing right. 

KG: The importance of getting sizing right cannot be overstated. Deals are competitive and time-sensitive with brokers often shopping the same deal with multiple banks. If an originator misjudges the loan sizing – either under-sizing due to conservative assumptions or rejecting the deal outright – they risk losing it to a competitor who better understood the risk. A single mis-keyed number, an incorrect input in a model or a misunderstood expense can mean the difference between "losing” or “signing up” a deal. Also, an originator’s reputation and credibility is on the line with each sizing. Re-trading a deal because the sizing was wrong can really hurt the relationship. A small misstep in loan sizing can mean a missed opportunity or lost relationship.   

JC: It can go the other way as well. A lender will win a deal, sign it up and it goes through underwriting. Then they realize a mistake was made in the sizing stage. Now they must go back to the borrower and re-trade it. They may need to restructure the deal or withdraw the offer altogether. An example would be a term sheet issued for an $18 million loan, but based on the underwriting and diligence process, the property can only support $15 million in proceeds. Either way, it’s a bad day for that originator because the borrower relationship has been jeopardized.   

Is there an area of risk that you're currently seeing and helping clients avoid? 

KG: One area we’re always watching closely is the quality of assumptions in loan packages. In the current market environment, we’re seeing a tendency toward overly optimistic proformas—sometimes significantly out of step with actual market fundamentals. We see it as our responsibility to present a clear picture of the asset and incorporate our experience and access to key market data. Our goal is to help originators anchor their underwriting in reality; it’s up to them to make the necessary adjustments during negotiations. But we believe that kind of transparency early in the process ultimately leads to stronger deals and fewer surprises down the line.  

JC: In general, our seasoned professionals will catch issues because of the volume of loans they size. In 2024, we sized over 6,100 loans with a combined $165 billion in proceeds, reflecting deals throughout the capital stack, including senior and mezzanine debt. Also, our sizing team isn't working in isolation. They are part of a larger group of professionals who are underwriting, closing, helping to securitize and valuing transactions every day across the U.S. That gives us insights into what's going on in the market and helps us identifying areas of risk. Whether it’s a $5 million deal or $500 million deal, we can support the analysis and help them determine the creditworthiness of the transaction.   

How does market demand affect the sizing work?  

KG: Market volatility directly impacts volume and type of sizing requests. In a favorable market, there's a flood of deals coming in and internal origination and underwriting teams may not have the capacity to vet every opportunity. Our experienced sizing teams can help in these high-demand environments to ensure opportunities are not missed due to capacity limits. The focus is on speed and efficiency – quickly evaluating many deals to determine which ones are worth pursuing further. In a down market, resulting in fewer inbounds, originators need to go out and find new business versus being bogged down with financial modeling or early-stage analysis. This allows originators to spend more time building relationships, resulting in more leads. The work becomes more strategic—supporting targeted deal sourcing and helping originators focus on high-impact activities.  

Talk about the role AI is expected to play in sizing.  

JC: Today, AI can assist with efficiency in data entry, especially with multi-tenant properties or large portfolios, getting information into models quickly, accurately and systematically. But then a human is needed to integrate all the aspects of the transaction: the market, sponsorship, property nuances, issues that can't be easily discerned from a rent roll or a financial statement. AI is a fast-evolving technology and I expect that it will be able to support more than just data entry in the future. 

KG: Like every industry, AI is expected to have a significant impact with sizing as well. AI will accelerate the processing of data, shorten the time it takes to prepare and review, and allow more time for strategic interpretation. AI will automate many steps in the sizing process – empowering people to invest more time with insights and judgment versus data entry.    

For more information on SitusAMC’s loan sizing services, contact Jen Cleare at jennifercleare@situsamc.com.