Construction Loan
Short-term financing used to fund the development of new commercial real estate projects. Construction loans are disbursed in draws as work is completed, with interest accruing only on funds advanced. They typically feature floating rates, 18-36 month terms, and require personal guarantees. Upon completion, the loan is paid off through permanent financing or sale.
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Related Terms
Bridge Loan
Short-term financing (typically 1-3 years) used to "bridge" the gap between acquisition/repositioning and permanent financing. Bridge loans are ideal for value-add strategies, lease-up, renovation, or properties that don't qualify for traditional permanent financing. They feature higher rates and more flexible terms than permanent loans.
Permanent Financing
Long-term debt (5-30 years) secured by stabilized commercial real estate, underwritten primarily on current cash flow. Permanent loans offer lower rates than transitional financing and are available from life companies, banks, agencies, and CMBS lenders. They are the typical "take-out" financing after construction or bridge loans.
Recourse
A loan where the borrower is personally liable for repayment beyond the value of the collateral property. Recourse loans are common for construction loans, bank loans, and smaller transactions. Full recourse means the borrower guarantees the entire loan; partial recourse or "burn-down" provisions may reduce the guarantee over time as loan risk decreases.
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