Debt
Permanent loans
Long-term fixed or floating rate financing for stabilized, income-producing commercial real estate.
Permanent lenders underwrite the cash flow a property produces today. Loan size is usually set by the most restrictive of a loan-to-value limit and a debt service coverage or debt yield test.
Options differ on term, amortization, interest-only periods, recourse, prepayment and whether the loan can be assumed by a buyer. The right choice depends on how long the sponsor expects to hold the property and what it plans to do with it.
We compare the options on those terms, not on the interest rate alone, and negotiate the terms that matter to the sponsor’s plan.
Sources
- Banks and credit unions
- Life insurance companies
- CMBS lenders
- Fannie Mae and Freddie Mac multifamily programs, through their approved lenders
Used for
Refinancing a construction or bridge loan once a property is stabilized, acquisitions of stabilized properties, and refinancing existing permanent debt.
How permanent loans differ
Permanent lenders typically size a loan with several tests at once: a maximum loan-to-value, a minimum debt service coverage ratio (the lender's underwritten net operating income or net cash flow divided by annual debt service) and, often, a minimum debt yield (underwritten net operating income divided by the loan amount). The most restrictive test generally sets the maximum loan amount.
Sources differ in ways that matter over a hold. Bank loans are often full or partial recourse, with shorter terms and more flexible prepayment, although a fixed rate set through an interest rate swap can carry a breakage cost if the loan is repaid early. Life insurance company loans are typically lower leverage, longer term and fixed rate. CMBS loans are typically non-recourse apart from customary carve-outs, often lock out prepayment for an initial period and then allow it through defeasance or yield maintenance, and are administered by a servicer after closing. Fannie Mae and Freddie Mac multifamily loans are typically non-recourse apart from customary carve-outs and are made through their approved lenders.
Prepayment terms often deserve as much attention as the rate, particularly when a sale or refinancing before maturity is possible. Yield maintenance and defeasance can make an early exit expensive, while a step-down prepayment premium declines over the term. If a sale during the loan term is likely, whether a buyer can assume the loan matters as well.
What permanent lenders look at
- In-place net operating income and occupancy
- Debt service coverage and debt yield
- The rent roll, lease terms and tenant quality
- The sponsor’s net worth, liquidity and record
- Third-party reports: appraisal, property condition and environmental
How a financing runs
- 01
The loan request
We build the request with the sponsor: the business plan, sources and uses, the budget or operating history, the pro forma and the sponsor’s financial information.
- 02
Lender selection
Lenders are chosen with the sponsor by property type, market, loan size and structure before anyone is contacted.
- 03
Quotes
Lenders receive the request under confidentiality and return indicative terms. We lay the quotes side by side on leverage, pricing, recourse, prepayment, reserves and covenants.
- 04
Term sheet
The sponsor selects a lender, and we negotiate the term sheet and the application.
- 05
Closing
We coordinate the appraisal and third-party reports, answer the lender’s underwriting questions and work with counsel on the loan documents through closing.
Loan terms depend on the property, the sponsor, the lender and market conditions, and a financing may not close.
Request financing
Send us the property, the business plan and the capital you need. We will tell you how we would approach it.