The permanent loan that pays off a construction loan, or the commitment from a lender to make that loan once the project is finished and leased.
A construction loan has to be repaid by something, and for a property that will be held, that something is the take-out. The OCC handbook says permanent loans, also called take-outs, are term loans that replace construction loans, and that the permanent lender may be the construction lender or another lender.
The handbook describes two kinds of commitment issued before a project is finished. A standby commitment is back-up financing in case the borrower cannot get a permanent loan; its fees and rate are often set to discourage the borrower from using it. A forward commitment is a promise to refinance the construction loan on completion and, almost always, lease-up, and it usually lets the borrower lock a fixed rate ahead of funding.
Neither removes the construction lender’s risk. Both require the building to be finished, and most carry performance tests such as leasing to break-even at minimum rents. The handbook says underwriting would ordinarily include what happens if the take-out does not fund, so bring the commitment and its conditions with your request.
How it shows up in the data here
A take-out commitment is a contract between a borrower and a lender and is not reported loan by loan in any public file. What the data can show is which lenders hold permanent loans of the kind you will need: see multifamily lenders and investor CRE lenders, and the lenders holding construction balances at construction lenders.
Go further
- Construction lenders by state: Lenders with construction and land balances.
- Multifamily lenders by state: Lenders holding permanent multifamily loans.
- Maximum loan calculator: The loan each test allows: DSCR, LTV and debt yield side by side, and which one binds.
- Construction loan package checklist: A construction lender is lending against a building that does not exist yet. The package has to show what it will cost, who will build it, where every dollar comes from, and how the loan gets repaid when it is done.
- How bankers evaluate a commercial loan deal: A credit officer asks one question five ways: how will this loan be repaid, and what happens if it is not? Knowing the five tests lets you size a request before you send it.
Related terms
- Permanent loan: A longer-term loan on a finished, leased property that replaces the construction or bridge loan and is repaid from the property's income.
- Construction loan: A short-term loan that pays for building or renovating a property, advanced in stages as work is finished and repaid from a sale or a permanent loan.
- Commitment letter: A commitment letter is the lender's written, binding promise to make a loan on stated terms, if the conditions listed in the letter are met by a set date.
- Lease-up: The period after a building is finished or renovated while it fills with tenants and its income climbs toward a stable level.
- Mini-perm: A medium-term loan, shorter than a permanent loan, that a bank makes on a finished property so the owner has time to lease it up before long-term financing.
- Bridge loan: A short-term loan that carries a newly built or newly bought commercial property until it is leased and earning enough to be sold or refinanced with a permanent loan.
- Life company lender: A life insurance company that makes long-term, fixed-rate commercial mortgage loans with its own investment money and usually keeps them.
Sources
Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.