Conditions Precedent: The Items That Decide Whether You Close

We had a closing tracker last week with one green column, one yellow column, and one item that looked trivial until it was not: a borrower entity had not produced the consent authorizing the loan documents. The appraisal was in. The title work was nearly done. The equity was wired to escrow. The file still could not close.

That is what conditions precedent are. They are not a list created after underwriting to make a borrower repeat work. They are the facts, documents, payments, and legal deliverables that must be true or delivered before a lender funds.

A broker often hears “subject to conditions” and thinks the lender is leaving room to change its mind. Sometimes a condition does identify a problem. More often, it is simply the work required to turn an approved credit decision into an enforceable loan with the collateral, reserves, insurance, and authorities that the decision assumed.

A July market read said banks remained selective on construction and transitional lending, while sponsors with 2021–2022 vintage loans were refinancing early (Hall Structured Finance). A complete checklist does not create proceeds. It prevents avoidable delay.

Borrower deliverables

The first six items establish who is borrowing, who can sign, where the equity is coming from, and whether the borrower can operate the hotel through closing. These are not clerical items. A lender cannot take a first-priority mortgage from an entity it has not properly identified and authorized.

1. Organizational chart and beneficial-ownership information. Provide every ownership tier, required identification, and control person. A chart that stops at the borrowing LLC is incomplete if the owner above it must sign a guaranty or consent.
2. Formation documents and good standing. Deliver the certificate of formation, operating agreement or partnership agreement, amendments, and current good-standing certificates for the borrower and relevant guarantors. An amendment signed two years ago can change who must approve the loan.
3. Authorizing resolutions and incumbency. The borrower needs written authority to borrow, grant liens, open required accounts, and sign the exact loan documents. This is the item that can stop a nearly finished closing in one page.
4. Financial statements and liquidity evidence. Send the most current personal financial statements, account evidence, contingent liabilities, and any required guarantor updates. Liquidity is tested after deposits, closing costs, reserve funding, and equity—not at the top of an account statement.
5. Sources and uses with equity verification. Reconcile purchase price or payoff, closing costs, PIP or capital budget, reserves, lender fees if applicable, and equity. Then show the source of each borrower dollar. A sources-and-uses schedule that does not balance is a loan amount problem, not an administrative condition.
6. Operating and franchise documents. Provide the management agreement, franchise agreement, PIP, licenses, material service contracts, and current operating statements. The lender must understand who controls the hotel, what fees are paid, and what capital work the brand requires.

Items 1 through 3 habitually cause an avoidable delay because sponsors treat them as counsel’s work. They are borrower work with counsel’s help. Start them when the term sheet is accepted, not when documents are circulated.

Third-party reports

The next five conditions test the asset itself. Reports have lead times, site visits, revisions, and reliance requirements. They are the usual cause of a 45-day target turning into a later closing when they are ordered late or the lender receives an old report that cannot be assigned.

7. Appraisal. The appraisal must support the approved collateral and value premise, be addressed or assignable as required, and be reviewed before closing. A prior appraisal may be useful; it is not automatically usable.
8. Property condition assessment. The engineer identifies deferred maintenance, life-safety issues, and capital items. We compare the findings to the PIP and to the borrower’s renovation budget. One roof or elevator item can change the reserve and sources and uses.
9. Environmental report. A Phase I establishes whether a recognized environmental condition requires more work. If it does, the condition may become a Phase II, an escrow, remediation evidence, or a decision not to fund.
10. Title, survey, and zoning. Title must show the intended insured lien priority. The survey must match the legal description and identify easements, encroachments, access, and boundary issues. Zoning confirmation must support the hotel’s existing and intended use.
11. Market, STR, and PIP support. For a transitional hotel, the file needs current market evidence for occupancy, ADR, competitive supply, and the brand work. The PIP must be reconciled to the capital plan, room-out-of-service schedule, and cash-flow ramp.

Trepp reported June CMBS delinquency at 7.35%, a 20-basis-point improvement, with lodging down 79 basis points; special servicing rose to 11.20% (Trepp). Those figures are a market reading, not a waiver for an individual property’s diligence. A closing checklist remains property-specific.

Lender and legal conditions

The last three items connect the approved credit structure to the funded loan. They are often the final gates because they depend on information from every other workstream.

12. Insurance, flood, and lender endorsements. The policy limits, named insureds, additional-insured status, lender loss-payee status, deductibles, flood determination, and cancellation provisions must fit the loan requirements. A binder missing the correct mortgagee language does not solve the condition.
13. Loan documents and closing deliverables. The note, loan agreement, mortgage or deed of trust, guaranties, assignments, deposit-account agreements, and required legal opinions must match the approved structure. Counsel cannot finalize them while material business points remain unsettled.
14. Reserve accounts, payoff, and funding flow. At closing, the title company, borrower, lender, and any existing lender need an agreed payoff letter, wire instructions, reserve funding, and a final settlement statement. The money has to arrive in the right account in the right order. A payoff that expires before the final wire is not a closing plan.

The usual late-stage slip is not a missing signature by itself. It is a late discovery that an early condition changed the economics: title requires an additional party, the PIP requires a larger capital line, the appraisal changes proceeds, or the insurance quote changes the operating budget. That is why the checklist needs an owner, a due date, a status, and a next action beside every item.

Run the checklist weekly

Our cleanest closings use one shared tracker from term sheet through funding. Each condition has a borrower owner, broker owner, lender owner, or counsel owner. “With borrower” is not a status. The status should say “bank statement delivered Monday, review due Thursday” or “survey revision requested; fieldwork scheduled.”

The broker’s job is not to collect every document personally. It is to force the first checklist conversation early, keep the source documents in one folder, and identify the item with the longest lead time. On a hotel bridge loan, that is often a report, a franchise consent, or an entity authorization—never the document everyone assumes can wait.

The box this week

• Loan size: $5M floor; $20M–$100M is our usual range
• Asset focus: hotels, resorts, and mixed-use hospitality; bridge and construction
• Leverage: determined by approved cash flow, collateral, and total sources and uses
• Structure: closing conditions include third-party reports, legal authority, reserves, and funding flow
• Timing: a 45-to-60-day close requires reports, entity work, and title to start at term-sheet acceptance

Send the operating package, organizational chart, franchise materials, and existing reports with the request. We will identify the condition that needs to start first.