Permanent financing, often shortened to a perm loan, is long-term debt placed on a stabilized property, typically used to replace a shorter-term construction loan or bridge loan once a project has reached a certain occupancy or income threshold. Perm loans generally carry longer amortization schedules and terms, often 10 years or more, and lower interest rates than the construction or bridge debt they replace, reflecting the reduced risk of a completed, income-producing asset compared to a project still under development or lease-up.
Sponsors typically pursue permanent financing once a property has achieved stabilized occupancy and a predictable income stream that supports underwriting by a life insurance company, agency lender, or bank on more favorable long-term terms. Moving from a construction or bridge loan into permanent financing, sometimes called a takeout, reduces refinancing risk and can also allow a sponsor to return capital to investors if the new loan amount exceeds the balance being refinanced. Investors evaluating a deal's business plan should understand the assumptions behind the projected timing and terms of the eventual permanent loan.
Further reading: Lightstone's Track Record
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