Permanent Financing For Commercial Real Estate
What is Permanent Financing?
A permanent loan is a long-term financing option typically used to purchase real estate. It refers to mortgages designed for stabilized commercial properties, secured by income-generating assets with predictable cash flow. Unlike short-term or construction loans, which provide temporary funding, this type of loan offer a stable, long-term solution for property owners and developers. Often called “takeout loans,” they replace interim financing once a project is completed.
After completing construction, permanent loan, spanning 15 to 30 years, allows businesses to repay short-term construction loans. Suitable for financing fixed assets like real estate, these funds can repay construction loans, facilitate property acquisition, or refinance existing debt. Businesses with a qualifying credit score and up to 85% loan-to-value ratio can secure permanent financing.
What is a Construction-to-Permanent (C-to-P) Loans?
A construction-to-permanent loan is a single loan that finances both the building phase and the long-term mortgage of a property. It begins as a short-term loan to cover construction costs, then seamlessly transitions into a permanent mortgage once the project is completed. This type of financing eliminates the need for multiple loans and closings, making the process more efficient. During construction, borrowers typically make interest-only payments, which then shift to regular mortgage payments after the loan converts.
What Is Owner-Occupied Commercial Real Estate (OOCRE)?
Owner-occupied commercial real estate (OOCRE), also known as owner-user commercial real estate, refers to properties owned by the same business that operates within them. In some cases, the property may be held by an affiliated entity, such as a holding company, but it is still primarily used by the business itself.
Permanent financing is closely related to owner-occupied commercial real estate, as OOCRE loans are a specific type of permanent financing designed for businesses that occupy at least 51% of the property. These loans provide long-term financial stability for businesses looking to purchase or refinance their properties.
Refinancing Construction Project
Upon construction completion and lease-up (stabilization), the project is ready for permanent financing with amortizations for up to 30 years. Typical institutional debt terms have maturities of 10 years with an interest-rate re-set after 5 years from closing. Interest rates will be determined based on the overall property and sponsorship strength.
Common Use Cases
Stabilized properties whether multi-family, office, hospitality, industrial, self-storage, medical, government and more qualify for permanent financing with amortizations up to 30 years. Typical institutional debt terms have maturities of 10 years with an interest-rate re-set after 5 years from closing. Interest rates will vary depending on the property and sponsor strength.