Permanent loans are suitable for stabilized, cash-flowing properties. Loan terms are typically 5 to 10 years, but frequently extend to 15 or even 30 years. Some period of interest-only debt service is possible, but generally permanent lenders demand amortization on a schedule of 20 to 30 years.
Loan-to-value and debt service coverage ratios are the primary metrics for determining loan proceeds. Permanent lenders look for ample equity and cash flow cushion to preserve their principal. Mature assets that have appreciated in value qualify for “cash-out” recovery of equity.
Permanent loan interest rates are fixed as a credit spread over a United States Treasury Bond rate of maturity equivalent to the loan term. However, a LIBOR swap may also be employed, particularly for shorter term fixed-rate loans.
Generally permanent loans demand stabilized cash flows, but in certain conditions (e.g. 100% pre-leased credit tenant built-to-suit projects) pre-stabilized assets may qualify for advance funding. This amount is based on a funded interest reserve or holdbacks for future funding.
Forward commitments are also available, allowing the borrower to lock the rate today with a deposit and fund the loan when certain events occur in the future, such as completion of construction or leasing.