Blanket portfolio debt versus separate property loans

A blanket loan can save interest while connecting a strong property’s cash to a weaker property’s problems. Separate loans can preserve an independent financing path, but they do not make the weak property’s losses disappear. Compare where cash is legally accessible and what happens if the strong asset is refinanced to supply new money.

The following example uses two properties with identical operating results under each financing structure. Its cash-sweep, distribution, and cross-default terms are stipulated hypotheticals, not standard portfolio-loan provisions.

Draw the connections before adding the income

Property A produces $600,000 of annual cash before financing. Property B initially produces $400,000. The blanket proposal funds $7 million at 6%, interest only, secured by both properties. Its annual debt service is $420,000.

The separate-loan proposal funds $4 million on A and $3 million on B, each at 6.25%, interest only. Annual debt service is $250,000 on A and $187,500 on B, totaling $437,500. The blanket loan saves $17,500 annually before any other differences.

Assume the separate documents have no cross-collateral or cross-default connection between these loans, and A may distribute surplus while it remains compliant. That independence must be verified from the actual borrower, guaranty, cash-management, and loan documents; two separate account numbers do not establish it.

Fannie Mae’s Credit Facility term sheet is one official example of a structure that expressly combines cross-collateralization and cross-default while permitting specified property changes under its master agreement. It is a large facility product, not the hypothetical $7 million offer here. Its relevance is that connections and change rights must be read together.

Apply a loss at one property

Now assume B loses a major tenant and produces negative $100,000 before financing during the year, while A continues at $600,000. Combined property cash falls to $500,000.

Under the invented blanket terms, coverage below 1.30 times causes all cash after approved operating costs and scheduled debt service to be retained in a controlled account. The modeled coverage is $500,000 divided by $420,000, or approximately 1.19 times. The $80,000 remaining after debt service is therefore restricted, with release or use requiring the stated lender process.

Under the separate loans, A produces $350,000 after its $250,000 interest. B needs $287,500 of support: its $100,000 operating deficit plus $187,500 interest. Assume the owner is permitted and willing to transfer A’s distributed cash to B, and does so in time to meet B’s obligations.

Separate financing produces less combined cash because its interest is higher, but more of that cash is accessible under the stated restrictions. Calling A’s entire $350,000 surplus “free cash” would ignore the $287,500 needed to support B. Calling the blanket’s $80,000 an economic loss would ignore the restricted asset still held for the borrower under the agreement.

Identify the financing path for the strong property

Suppose B also needs a $300,000 re-tenanting program. The blanket lender may permit use of controlled funds or a release, but neither is assumed approved. The owner must determine the actual request, remaining collateral tests, and conditions before treating A as independently refinanceable.

Under the separate-loan scenario, assume A obtains an approved new $5 million loan and can repay its old $4 million loan for $100,000 of total transaction costs, with no other payoff premium. The transaction releases $900,000. The lender has evaluated A’s actual borrower and guarantor obligations; this is an assumed executable offer, not a statement that separate loans guarantee approval.

The $900,000 can fund B’s $300,000 work and leave $600,000 for other required uses or reserves. That ability to move capital is valuable, but the larger A loan also changes future annual cash flow.

Recalculate the portfolio after using that flexibility

Assume A’s new $5 million loan charges 7%, interest only, so its annual interest becomes $350,000. A’s cash after financing falls from $350,000 to $250,000. If B remains at negative $100,000 before financing, its $287,500 support need is unchanged.

The separate-loan group now has an annual $37,500 deficit after both loans: $250,000 less $287,500. Its $600,000 post-work reserve can support that modeled deficit for a time, but cannot be assumed both fully preserved for maturity and consumed for operations.

The refinance supplied useful cash because it increased A’s debt by $1 million, less $100,000 of costs. It did not improve the properties’ operating income. The owner’s plan must show how B’s work changes cash generation, when that improvement becomes evidence, and what happens if it is delayed.

Compare freedom with the conditions required to use it

Ask each lender what event traps cash, whose performance is tested, which accounts are controlled, and whether surplus may fund another asset. Identify shared guarantees and default definitions even if collateral is separate. A guarantee or another obligation may connect sponsor resources without a common mortgage.

For the blanket route, obtain the process for approved operating support, collateral releases, and substitutions. For the separate route, model the cost of multiple loans and the impact of refinancing one property on the group’s residual cash. A standalone asset financing can still rely on a sponsor whose liquidity is strained elsewhere.

The decision should state how the structure behaves after one asset changes. Here, the blanket saves $17,500 annually but traps the stressed residual under its assumed test. Separate loans preserve accessible cash and a potential A refinance, yet using that refinance creates a new annual group deficit until B improves. Both the legal access to money and the cash generated after using that access belong in the comparison.