Mini-Perm Loan

Mini-Perm Loan: What the Market Actually Requires

The mini-perm is fundamentally a bank product. A bank that financed construction would rather convert its loan into a three-to-five-year mini-perm than be repaid by a competitor, and the borrower avoids running a full refinance process on a building that is still leasing. Terms reflect that continuity: pricing better than bridge debt, leverage carried over from the construction loan, and typically recourse or partial recourse with negotiated burn-down provisions that reduce the guarantee as the property hits DSCR or occupancy milestones.

Covenants do the work in these loans. Expect ongoing DSCR tests, occupancy hurdles, and a cash flow sweep or re-margining requirement if performance slips: the bank's answer to holding a not-yet-stabilized asset on its balance sheet. The structure often opens with an interest-only period, then amortizes, and always ends in a balloon that assumes a permanent refinance. That balloon is the real risk. A three-year mini-perm written at the top of a cycle can mature into a frozen permanent market, and unlike a debt fund bridge loan, extension options are often shorter and more discretionary.

Against an institutional bridge loan, the trade is clear: the mini-perm is cheaper and keeps a relationship lender engaged, but it usually carries recourse, lower leverage, and tighter covenants, while a debt fund bridge is non-recourse and more flexible at a higher price. Strong sponsors with well-leased projects take the mini-perm; deals with real lease-up risk, or sponsors who cannot tolerate a guarantee, often pay up for the bridge. The common mistake is treating the mini-perm as a parking spot and starting the permanent refinance only when the balloon is twelve months out, leaving no cushion if the first execution fails.

Why It Matters for Your Loan

A mini-perm buys a new building time to season into permanent-loan metrics without paying bridge pricing, and it preserves the construction lender relationship. Its risks are the recourse guarantee and the balloon: mature into the wrong market and the cheap loan becomes an expensive problem. Commercial Lending Solutions helps sponsors weigh mini-perm against bridge executions at completion, and starts the permanent takeout process early enough that the balloon never becomes leverage against its own client.