Mini-Perm Loans for Commercial Properties

by A. Heinrich

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A mini-perm loan is a type of conventional loan typically used for acquisition or construction of a property and establishment of an operating history, in preparation for obtaining a term loan. With regard to the purpose and use of funds, a mini-perm loan closely resembles a bridge loan; but whereas bridge loans are offered by private money and sub-prime lenders, mini-perm loans are bank products-"conventional" bridge loans, as it were.

Example scenario: A well-established developer with sizeable assets has just completed construction of a 6-unit shopping center, for which he had obtained a construction loan from a bank. Shortly after completion, the construction loan is due, and must be paid off. The developer has confirmed the availability of a good term loan from a conduit lender, but the latter requires two years of stable operation establishing a debt coverage ratio of 1.20x. Since the developer has just completed construction, he has obviously not had the opportunity to establish this operating history, but still needs to refinance the construction loan. With long term pre-leases signed for all 6 units, the developer's good assets and a loan-to-value ratio of 65%, the developer is eligible for a mini-perm loan from a commercial bank at 150 basis points (1.5%) over prime, amortized over 25 years with a 3 year balloon.

Lenders often package construction and mini-perm loans together as a "construction/mini-perm" product, in much the same way they package construction and term loans together as a "construction-to-perm" product.

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