END LOAN

By definition, this type of loan is obtained at the very last stage of land development projects. However, the developer typically secures a commitment for this loan from the early stages of the land development process, because it is required by the lender who will provide the construction loan.

Land development is financed through an interim construction loan disbursed to the borrower in stages during the development and construction period. This loan is actually repaid upon completion of the building with the end loan, or permanent loan as it is otherwise referred to.

The terms of the end loan, such as duration and interest rate, are very important, because they influence to a great extent the before-tax cash flow of the property. The lower the mortgage payment, the higher the prorerty’s before-tax cash flow if positive, or if negative (especially during the lease up period) it would imply a smaller negative cash flow.

As any other mortgage loan, the permanent loan can be a variable-rate loan or a fixed-rate loan. A loan that allows the owner to pay considerably lower payments in the first 2-3 years after completion, during which the building may be suffer a significant vacancy rate, may be preferable.

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