Senior Debt

Senior debt, also known as a senior loan or senior note, refers to the primary or first layer of financing for any form of borrowing, including in real estate transactions. This form of debt takes priority over other forms of debt in the event of a liquidation or bankruptcy.

In other words, if a borrower defaults or goes bankrupt, senior debt holders are the first to be repaid from any assets or proceeds available, before other creditors, preferred equity holders, or common equity holders. This priority status makes senior debt less risky for lenders, and as a result, it typically has lower interest rates than subordinated or junior debt.

In the context of real estate, senior debt often takes the form of a mortgage or construction loan, with the property itself typically used as collateral. This means that in the event of a default, the lender can seize the property to satisfy the outstanding debt.

It's important to note that while senior debt is safer from the lender's perspective, it comes with stricter covenants and conditions for the borrower, given that lenders want to minimize risk and protect their investment.