A Mini-Permanent (mini-perm) loan is a type of commercial real estate loan that typically has a term between 3 to 5 years. Typically, a mini-perm is used to pay off a construction loan and fills in the gap until longer-term funding can be secured.Their flexibility allows them to work with numerous property types and situations. Developers use mini-perms in different ways to seize opportunities.
1) Fund and operate new income-producing properties.
A mini-perm helps developers construct new properties like office buildings, industrial parks, retail shopping centers, and multifamily properties. The financing gets these properties operating through their startup period. Plus, a mini-perm is easier to qualify for than construction-perm loans that roll over into a mortgage.
2) Cover costs until property proves it produces income.
A construction loan will cover just that: construction. A mini-perm can pay off construction debt and float a property for several years until it has established a record of producing income or until the property sells. If kept as an asset, developers can replace the mini-perm with better, long-term financing once its operating history is established.
3) Acquire under-performing properties and renovate to improve.
Developers can obtain mini-perm financing to secure a bargain for a distressed commercial property. Once rehabilitated, the developers can flip the property. For instance, an investor can use a mini-perm to purchase an under-performing multifamily complex. Renovating the complex increases its rental rates and occupancy, allowing the investor to sell for profit or conduct a 1031 exchange. Another option is to leverage the improved income-producing property’s operating history for better long-term financing.
4) Options for financing with a mini-perm loan
Developers have two options when looking at a mini-perm: hard mini-perm and soft mini-perm. The first typically matures in seven years while the latter ranges from three to five years. Talk to mini-perm lenders like OneSource about the different structuring options available. When ready for a mini-perm, present a solid executive summary to improve the chances of approved financing.