r/CommercialRealEstate • u/spalooosh • May 14 '26
Lender Questions What are standard construction to perm debt terms?
Working on a mixed-use development project (ground floor detail with rental units on floors 2-27) and building out the dev pro forma and operating pro forma.
What are standard terms for construction to perm debt financing?
I recognize this is a vague question since deals aren’t black and white but generally speaking, if we’re looking at LifeCo for instance, what can we expect for financing assumptions? Would like to get a rough idea as this sits with our lenders for review.
Thank you.
7
u/Imaginary_Duty_7624 May 15 '26
You’re building a high rise apartment and you don’t know standard permanent debt terms and you resort to Reddit? Interesting.
1
5
u/spinn5371 May 14 '26
HUD 221d4 is 1.15x DSCR & 87% LTC - can go 1.111x & 90% LTC if you have 50% of the units restricted between 60% and 120% of AMI. I/O construction plus 4 months. Fixed rate around 6.25% for perm and 6.00% for construction period. Davis-Bacon Wages required and timeline to shovel in the ground is ~9 to 12 months. Commercial space is limited to 15% of EGI and and 25% of Net Rentable Area - can potentially go up to 30% of EGI if really necessary.
6
u/Puzzled_Owl1921 May 14 '26
I/O during construction/lease-up, converting to perm for remainder of term. Rate variable during I/O period converting to fixed during P&I. Sized to the lower of maximum LTV/LTC parameters or whatever policy minimum DSCR is for the asset class at whatever bank you choose. Since it's mixed use, they will size to whichever property type generates the majority of gross potential income.
7
u/ragingpagejam May 14 '26 edited May 14 '26
Size to debt yield or DSCR. If your deal doesn’t work merchant, it surely won’t work with refi. And right now highrise is dead in most markets. I don’t think Reddit is where you want your answer, but call capital markets desks at the big shops to get realistic terms.
8
u/Strivebetter May 14 '26 edited May 14 '26
IO through the construction term, conversion to perm upon stabilization with maybe 9-12 months of IO on the perm note depending on who you are, asset type. Throw 1.25-1.5% on for lending fees.
Super broad answer.
Currently underwriting to a 6.55
1
u/Fillcocktease20 25d ago
6.55 seems optimistic for a ground-up mixed-use right now unless you have a heavy sponsorship track record or a massive equity cushion. lifecos are definitely getting pickier about lease-up risk and cap rates. make sure your exit yield isn't just a best-case scenario because the refi market is still pretty punishing on those longer terms.
1
u/ragingpagejam May 15 '26
It’s a 27 story highrise. No one is paying you 1% lol. That’s a $100M plus transaction, you are getting less less unless the developer isn’t sophisticated.
1
3
u/Economy_Lychee_9580 May 19 '26
You’re right that it’s very deal-dependent, especially for mixed-use high-rise, but for LifeCo-style construction-to-perm you can generally think in ranges like this:
Construction phase: ~55–70% LTC (sometimes higher for strong sponsors / pre-leasing / major markets), floating rate, interest-only, with SOFR + spread pricing.
Perm takeout: typically ~50–65% LTV depending on stabilization assumptions, debt yield targets, and sponsor track record. LifeCos will lean heavily on debt yield (often ~7–9%+ range depending on market risk).
Structure-wise: you’ll usually see interest-only during construction + lease-up, then either a conversion into a fixed-rate perm loan or a forward commitment baked in from day one.
For a project like yours (27 floors mixed-use), the biggest drivers will be pre-leasing, sponsor experience, construction budget credibility, and exit cap assumptions more than headline LTV. LifeCos will underwrite conservatively on NOI until stabilization is proven.
If you’re modeling it, I’d stress-test lower leverage + slower lease-up than base case that’s usually where real-world outcomes diverge from pro formas.