MidCap has the ability to go direct to many different permanent loan sources. However, our promise is to cover the entire market regardless of who controls the permanent loan provider. If this requires us to split a fee with a capable correspondent lender, we will. Our interest lies with finding not just the best pricing on the permanent loan, but the best fit for the real estate owner.
A permanent commercial loan typically has a term of ten years, or longer. Additionally, the interest rate for a permanent loan is most often fixed during the life of the loan. Permanent loan providers can be life insurance companies, conduits (also called CMBS lenders), agency (Fannie Mae, Freddie Mac, HUD), or commercial banks. Permanent loans are not something commercial banks commonly provide, though in some cases they do. Commercial banks typically stick with construction and mini-perm (3-7 year term) commercial real estate lending. However, as mentioned, in certain circumstances they can provide a permanent loan—and typically with less of a prepayment penalty than other providers.
Life Insurance Companies Are A Leading Source of Permanent Commercial Loans
Life insurance companies are a leading source of permanent loans for commercial real estate. Life insurance companies are “real estate lenders”, meaning that they base permanent loan underwriting on the quality of the real estate versus the credit worthiness of the owner/borrower. Life insurance companies have several advantages when it comes to providing permanent loans. Using general account funds gives them a unique advantage when it comes to providing longer-term fixed rate financing. Life company lenders are also typically able to lock rates early and quickly during the permanent loan process without the complications involved in acquiring an interest rate hedge. Additionally, by retaining permanent loans in their portfolio, life company lenders will consider loan modifications or special requests during the loan term.
CMBS is another popular type of permanent loan. CMBS (commercial mortgage backed securities) are a type of security investment secured by commercial mortgages. CMBS are generated by so-called “conduit” lenders, who originate commercial mortgages with the aim of securitizing them, arranging them into asset pools, and selling standardized sections of these pools to investors on the open market. CMBS permanent loans offer a good alternative to life insurance company debt as they also allow for long term, fixed rate permanent loans. One advantage of CMBS loans is that they can accommodate very large loans (some as large as $1 billion have been done on New York City skyscrapers), however, one disadvantage is that they have less flexibility than life insurance company permanent loans.
Agency permanent loans, those issue by agencies of the federal government (Fannie, Freddie, HUD, etc.), are another great option for borrowers. However, this option is available primarily for larger multi-family commercial real estate projects. Put MidCap’s extensive relationship network of permanent loan providers to work for your project today!