What it is
A permanent loan, often shortened to "perm," is long-term financing for a property that is already stabilized: leased up, operating normally and producing steady income. It's the loan most properties carry for most of their life. It often takes out a bridge or construction loan once the business plan is done.
How permanent loans are commonly structured
Structures vary by lender type, but permanent loans often include:
- Longer term. Commonly five to ten years, sometimes longer with life companies and agency programs.
- Fixed rate in many cases, though floating options exist.
- Amortization. Often 25 or 30 years, so a balloon payment remains at maturity. Some loans include a partial interest-only period.
- Prepayment penalties. Step-down, yield maintenance or defeasance, depending on the lender.
Who makes them
| Lender type | Commonly known for |
|---|---|
| Banks and credit unions | Relationship lending, often with some recourse |
| Life insurance companies | Lower leverage, high-quality assets, long fixed terms |
| CMBS conduits | Non-recourse, sized heavily on debt yield, less flexible after closing |
| Agency lenders | Fannie Mae and Freddie Mac multifamily programs |
| SBA 504 | Owner-occupied properties |
How they're sized
Permanent lenders size on in-place performance. They build underwritten NOI from the T-12 and rent roll, then apply their loan sizing tests: maximum LTV, minimum DSCR and often minimum debt yield. Projected income from a pro forma usually doesn't count.
Taking out a bridge loan
The handoff from bridge to permanent is where many value-add plans are tested. If stabilized NOI comes in lower than projected, or rates are higher than assumed, the permanent loan may size smaller than the bridge balance. The sponsor then has to bring cash to refinance.
Common mistakes
- Pitching an unstabilized property to perm lenders. If occupancy or income hasn't settled, many will pass.
- Focusing only on rate. Prepayment terms can matter more if the sponsor might sell early.
- Ignoring the balloon. At maturity, the remaining balance has to be refinanced or repaid.
In the package
Show a clean T-12, current rent roll and underwritten NOI, then the requested loan with all sizing metrics. For the full sizing walkthrough, see how to size a commercial real estate loan.