| In simple terms, a bridge loan is a short-term, interim | | | | you do. |
| commercial mortgage loan that is sometimes | | | | After a lender has been identified you'll need 4 things |
| necessary to "bridge" a funding gap that can exist | | | | to get the loan; credibility, equity, a payment strategy |
| while arranging and closing more permanent financing | | | | and an exit strategy. |
| or other financial transactions. For example if an | | | | Bridge lenders are highly sophisticated financial pros |
| investor is closing on an apartment building in 3 weeks | | | | who like to work with other seasoned professionals. |
| and her bank can't close her purchase loan for 3 | | | | Short term loans arranged on-the-fly are risky |
| months, she needs a 90 day bridge loan to get her | | | | endeavors, they are a privilege granted to credible |
| deal done. Or an investor might be selling a building to | | | | investors with proven track records of success. |
| raise cash that is needed right away, but it's going to | | | | Bridge loans are essentially equity loans. It is imperative |
| take at least 6 months to market and sell the building. | | | | that the collateral property be worth more than the |
| A bridge loan is the answer. | | | | loan balance. Each lender will have their own |
| Bridge financing is time sensitive lending that, almost | | | | parameters but none will write 100% LTV interim |
| always, needs to be arranged and closed quickly. | | | | financing in today's credit environment. |
| Commercial real estate property owners, investors | | | | A legitimate, verifiable debt service plan is nearly as |
| and developers must pay-up for the speed and | | | | important as equity. It is not enough that investors say |
| efficiency that bridge lenders can provide. Rates on | | | | they can and will make payments, they must prove it. |
| bridge capital start at around 10% and, depending on | | | | If the property being financed or the borrower can not |
| the perceived risk in the loan, can top out at 15% or a | | | | document sufficient income to make the mortgage |
| little more. If lenders and brokers add origination points | | | | payments, then an interest reserve can be arranged if |
| a bridge loan can be very pricey indeed. Yet, | | | | the lender and borrower agree and there is enough |
| commercial real estate bridge lending is a huge | | | | equity in the property to support a larger loan. In an |
| business with volumes counted in the hundreds of | | | | interest reserve scenario, the bridge lender either loans |
| billions of dollars. Investors understand that, although | | | | the investor more money to make interest payments, |
| costly in absolute terms, a bridge loan is much less | | | | or takes the interest out of the original loan proceeds. |
| expensive than taking on a partner who will demand | | | | The proceeds are held in an account and payments |
| 50% of the project forever, and a-heck-of-a-lot less | | | | are deducted from the account when due. Interest |
| expensive than losing their deal altogether. | | | | reserve accounts are managed by third parties |
| Banks, Wall Street and other large institutional lenders | | | | such-as trustees or attorneys. If the loan is paid off |
| are not effective in the bridge lending space. They | | | | early any balance in the interest reserve is released to |
| tend to be highly regulated and highly bureaucratic. By | | | | the borrower. |
| the time a conventional lender could arrange a bridge | | | | An exit strategy is of paramount importance when |
| loan any opportunity would be long gone. | | | | seeking a bridge loan commitment. Bridge loans are |
| In-point-of-fact the slowness of institutions is the | | | | short-term, opportunistic loans. The financiers who |
| reason bridge loans are in such demand. Effective | | | | originate and fund them want to know exactly how |
| bridge lending is usually accomplished by private, | | | | they will be paid back and when. The two most |
| unregulated financial firms such as hedge funds, private | | | | popular and viable exits are to secure replacement |
| equity groups, mortgage pools and other private | | | | financing or to sell the collateral. Because of the |
| lenders. | | | | relatively short time horizons that bridge loans cover, |
| These unique funding sources answer to no one but | | | | an investors exit must be well under way even before |
| themselves, they can make decisions on-the-spot and | | | | you seek the bridge debt. It's not enough to say you |
| close multi-million dollar deals in just days. | | | | will sell the target building, a bridge lender wants to hear |
| Bridge loans are short term loans typically between 9 | | | | that you have sold the target building and it's going to |
| & 18 months long and rarely more than 36 | | | | close on such-and-such a date. You can't get away |
| months. They are generally structured as simple | | | | with telling a bridge lender that you are going to get a |
| interest only loans with the principle due in-full at | | | | permanent loan, you'll need to show them the term |
| maturity. They are underwritten based on the equity | | | | sheet from the bank and convince them that the deal |
| that exists in the collateral property and are not credit | | | | will close. |
| or balance-sheet driven. | | | | Bridge loans make the commercial real estate world |
| The first and most important factor in obtaining a | | | | go' round. They are used for construction or other |
| bridge loan is knowing where to go to get one. If you | | | | budget short-falls, to buy out departing partners, to |
| need bridge capital you won't have time to shop | | | | rescue projects from foreclosure, to pay estate taxes |
| around and research lenders. The clock will be ticking | | | | and even to settle nasty divorce cases. There are as |
| and you'll likely have only one shot at saving your deal. | | | | many reasons for bridge loans as there are |
| The best strategy is to develop relationships with | | | | commercial buildings in a city. Like ports in a storm, |
| lenders and professional commercial mortgage | | | | they are most welcome sites to those who need |
| brokers before you need one, so they'll be there when | | | | them. |