According to Walt Trock, Senior Partner at McMann Commercial Lending, a Term or Permanent loan is a first mortgage on a commercial property with a term of at least 3 years or more which has a matching or greater amortization repayment schedule. The most common amortization schedule for commercial loans is 25 years. Basically, a Term Loan is a fixed rate for the initial term and then an adjustable rate tied to margin and an index for the balance of the amortization schedule of the loan. Bridge loans are important because they usually will allow a property owner time to get the property fully leased in order to qualify for the End or Term Loan.
Whereas a bridge loan is a short term commercial real loan – usually in a first mortgage position – that is designed to bridge some gap between when a commercial project is completed and before that project is fully seasoned for income. Seasoning of a property, usually requires 3 or more years before that property would qualify for a lower rate End or Term loan.
A bridge loan is defined as a short-term real estate loan that gives the property owner time to complete some task – such as improving the property, finding a new tenant and/or selling the property.
The typical commercial property bridge loan has a term of six months to one year, although many commercial bridge loan lenders will grant the owner the option to extend for six months to one year for a fee of between a half-point point to two points.
Bridge loans are more expensive than permanent loans. In a market where a commercial property borrower might be able to obtain a 4% permanent loan, he might have to pay LIBOR plus 3% to 4% (8.25% to 9.25%), plus a point or two, for a bridge loan from a commercial real estate opportunity fund.
Commercial property bridge loans are typically paid off when the owner places permanent financing on the property, after the improvements are completed and the new tenant(s) move into the property. Because of their short term nature, more bridge loans have no prepayment penalty.
A permanent loan is defined as a first mortgage on a piece of commercial property that has some amortization and a term of at least five years. Most commercial permanent loans are amortized over 25 years. If the property is older than 30-years-old and/or showing signs of wear and tear, many banks will insist on amortizing their commercial permanent loans over just 20 years.
Permanent loans are usually made by either life insurance companies, conduits, banks, or credit unions. In terms of the number of commercial loans written, banks are by far the most active makers of permanent loans. I listed the types of permanent lenders in the order of their typical rates. In other words, life insurance companies offer the lowest interest rates on permanent loans, followed next by conduits, banks, and credit unions. Therefore, if you have the most gorgeous commercial property in town, you may want to start your search for a new permanent loan by applying to some life insurance companies.
Commercial Real Estate Financing & Valuation 