Permanent Financing for Commercial Real Estate
Permanent financing options for commercial real estate include life company, bank, and in some cases CMBS loans.
Permanent Senior Debt for Commercial Real Estate
Permanent debt is the loan a property carries once it is stabilized and leased. Long term, usually fixed, sized off in-place net operating income rather than off a business plan. It is normally the cheapest money on the capital stack. The price of that is call protection. Getting the structure right is mostly a question of matching your hold period to the term, because levered returns improve with a longer amortization and are undone by a prepayment penalty you did not plan for.
Four groups write permanent loans on commercial property. They do not compete for the same deals.
Life Companies
Insurance company lenders price the tightest. They also hold what they originate, which is exactly why they are selective: institutional-quality assets in primary markets, conservative leverage, and amortization that often runs to full payoff. Right first call on a stabilized Class A property with strong sponsorship. Wrong call on anything with a story attached to it.
Conduit and CMBS Lenders
Conduit loans are underwritten to be sold into a securitization. The property carries the credit; the sponsor largely does not. That is what makes them non-recourse and available at higher leverage than an insurance company will offer. The trade is rigid servicing, a single-purpose-entity requirement, and defeasance or yield maintenance on the way out.
Banks and Credit Unions
Banks sit between the two on price and ahead of both on flexibility. Terms run shorter, recourse is common below a certain loan size, and the depository relationship still counts for something. For a borrower who expects to sell or refinance inside five years, a bank loan with a step-down penalty is often cheaper all-in than a ten-year conduit loan with defeasance. Even at a higher coupon.
Debt Funds and Pension Capital
Above roughly $25 million, pension funds and large institutional lenders come into the bidding and pricing tightens again. Debt funds write permanent-style paper as well, generally at higher leverage and a wider spread, for assets that are stabilized but do not fit an insurance company box.
Indicative Permanent Loan Parameters
The parameters below were first published on this page in 2022 and are kept as background rather than as a quote. Loan sizing, leverage and pricing all move with rates and lender appetite. For live terms on a specific property, ask the desk what it sizes to.
Loan size: $1 million and up
Leverage: to 75% LTV, lower on life company paper
Term: up to 10 years
Amortization: 20 to 30 years
Recourse: non-recourse available, standard on conduit paper
Call protection: defeasance, yield maintenance or step-down
Use of proceeds: acquiring or refinancing commercial real estate
What Permanent Debt Costs You
Permanent debt buys the lowest coupon, the longest term and the deepest amortization available on a stabilized asset. What it costs is optionality. Call protection makes the loan expensive to retire early, and a fixed ten-year term limits your ability to recapitalize when the property appreciates or when you want to pull cash out.
So price the exit before you price the coupon. A borrower who genuinely intends to hold for ten years should take the longest fixed term available. A borrower who might sell in year four should look hard at a shorter bank term, or at a loan a buyer can assume.