What Is a Mini-Perm Loan?
A mini-perm loan is an intermediate-term loan — commonly structured for roughly three to five years — used to refinance a construction loan once a building is complete but before the property has fully stabilized. Rather than trying to place long-term permanent debt against a pro forma that hasn't yet been proven, the mini-perm gives the property time to lease up and season its cash flow, so a future permanent lender can underwrite to actual trailing financials instead of projections.
Mini-perms are typically provided by banks, credit unions, and debt funds — the same lender types active in construction financing — and can carry either a floating or fixed rate, often with interest-only or partial amortization during the term.
From Mini-Perm to Permanent Financing
A property is generally ready to graduate from a mini-perm to permanent financing once it has reached a target stabilized occupancy (often in the neighborhood of 90%-plus physical occupancy) and can show a meaningful trailing period of seasoned, in-place cash flow that supports permanent loan sizing under standard DSCR, LTV, and debt yield metrics. At that point, the borrower typically refinances into long-term permanent debt from an agency lender (Fannie Mae/Freddie Mac), a life insurance company, or the CMBS market, locking in a longer amortization schedule and, often, a lower fixed rate than the mini-perm carried.
Refinance Risk
The central risk in a mini-perm structure is refinance risk: if lease-up takes longer than projected, market rents or cap rates move unfavorably, or interest rates rise, the property's seasoned cash flow may not support enough permanent loan proceeds to fully repay the mini-perm balance at maturity. This can force the sponsor to inject additional equity, negotiate a costly extension (often with an extension fee and/or rate step-up), or in a worst case, sell the asset or default. Because of this, sponsors typically build a cushion into their stabilization timeline and monitor leasing progress closely against the mini-perm's maturity date.
Typical Mini-Perm Structure
- Term of roughly 3 to 5 years, bridging construction completion to stabilization
- Interest-only or partial amortization, sometimes with floating rate pricing
- Provided most often by banks, credit unions, and debt funds
- Frequently includes one or more extension options, usually fee-based
Signs a Property Is Ready to Graduate to Permanent Debt
- Physical occupancy has reached a stabilized level, often 90% or higher
- A meaningful trailing period of seasoned, in-place NOI is available for underwriting
- DSCR, LTV, and debt yield at the trailing cash flow support the desired permanent loan amount
- Market conditions support a permanent lender's pricing and leverage assumptions
Watch the Stabilization Clock
Because a mini-perm has a fixed maturity, any slippage in the lease-up timeline shortens the runway to arrange permanent financing — sponsors should track leasing pace against the maturity date well before the final year of the term.
Module Check
What is the primary role of a mini-perm loan in a commercial real estate financing timeline?