Long-term real estate financing commonly with a maturity of 30 years and longer is permanent financing, used to refinance construction or bridge loans on properties that have reached stabilization, finance acquisition of stabilized properties, or refinance other term financing. Stabilization is the point at which a development project or acquisition becomes income-producing real estate by achieving a certain level of completion, lease-up and/or net income necessary to enable either its sale or qualification for permanent financing.
Permanent financing is provided by the construction lender and other types of lenders, including life insurance companies, pension funds and conduits that issue securitize commercial mortgages. Permanent financing from life insurance companies and pension funds is commonly made available as fixed-rate nonamortizing interest-only term (bullet) loan (e.g., TLb), whereas banks typically require monthly amortization (e.g., TLa).
A construction lender often requires a take-out commitment from a permanent lender, whereby another lender contractually commits to provide permanent financing to replace the ADC financing when a certain event occurs – generally upon stabilization and completion of the project. A take-out assures the construction lender that permanent financing will be available to repay the construction loan when the property development project is completed and other conditions are met. Take-out commitments may be provided before or after construction completion and lease-up as a stand-by commitment or forward commitment, respectively.