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When it comes to commercial real estate, not every property is ready for long-term financing the moment construction or renovations are complete. That’s where lease-up loans come in. These short-term financing solutions are specifically designed to support investors during the transitional phase—between project completion and full stabilization.
In this article, we’ll break down what a lease-up loan is, when it’s used, and why it can be a critical part of a successful real estate strategy.
A lease-up loan is a short-term commercial real estate loan that helps investors bridge the gap while a property is in the process of stabilizing. Stabilization typically means the property has reached target occupancy and is generating market-level rental income. This can take time—especially for newly built, heavily renovated, or repositioned properties.
During this phase, long-term lenders may not be ready to finance the deal because the asset doesn’t yet meet their income or occupancy requirements. A lease-up loan offers an interim solution that gives the investor time to bring the property to full performance.
These loans are commonly used by:
Developers of newly constructed commercial properties
Investors who have renovated or repositioned a retail, office, or multifamily asset
Borrowers who need additional time to stabilize rental income before applying for permanent financing
If a property has been recently vacated, undergone a major rehab, or is being marketed to a new tenant base, lease-up financing can give the owner the breathing room needed to execute the business plan.
Lease-up loans are structured to align with the temporary nature of the situation. Some of their defining characteristics include:
Short-Term Duration: These loans are designed for use over a period of several months to a few years, depending on the lease-up timeline.
Interest-Only Payments: To preserve cash flow while occupancy ramps up, payments are typically interest-only.
Higher Loan-to-Value (LTV) Ratios: Compared to permanent loans, lease-up financing may offer more leverage, reducing the borrower’s upfront equity requirement.
Exit Through Permanent Financing: Once the property is stabilized, borrowers often refinance into long-term products such as CMBS (Commercial Mortgage-Backed Securities) or agency loans from lenders like Fannie Mae or Freddie Mac.
This type of financing plays a crucial role in the life cycle of a commercial property. Without it, investors might be forced to either sell early—potentially leaving value on the table—or attempt to qualify for permanent financing before the asset is truly ready.
By using a lease-up loan, investors gain the time needed to:
Achieve target occupancy
Increase rents to market levels
Improve tenant mix
Stabilize operations and cash flow
Once these goals are met, the property is in a stronger position to support long-term financing—often with better rates and terms.
A lease-up loan is not just a temporary fix—it’s a strategic tool for investors navigating the delicate period between development or repositioning and long-term financial stability. It’s ideal for properties that are almost ready, but not quite there yet.
Whether you’re an investor managing a commercial lease-up or a broker advising a client, understanding how and when to use a lease-up loan can help ensure a smoother, more profitable transition toward permanent financing.
TaliMar Financial is a private mortgage fund that offers investors the ability to participate in the growing market of private real estate debt. Since 2008, TaliMar Financial I has focused on providing real estate investors and operators with the capital they need to purchase, renovate, and operate residential and commercial properties. Our experienced executive team has funded over $450 million in short term debt secured on residential and commercial real estate primarily throughout Southern California and has returned over $40 million to investors in monthly distributions.
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