Interest Reserve
Quick answer
An interest reserve is loan proceeds set aside at closing to pay interest during a period when the property does not generate enough income to cover debt service.
Interest reserves are standard on construction and bridge loans. The lender sizes the reserve to cover projected debt service through construction and lease-up, and funds it through draws. A reserve that runs out before stabilization is one of the most common causes of a mid-project capital event, so reserve sizing is a core structuring decision.
Related product: Bridge Loans
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