Bridge Loans for Commercial Real Estate
What is a Bridge Loan?
A bridge loan is a financing option ideal for repositioning or rehabilitating a commercial property. Also known as “gap financing” or “swing loans,” typically lasts between 12 and 24 months designed to bridge financial gaps while you await long-term funding. It offers up to 75% LTC, starts at just 4.75%, and features non-recourse options.
Common Use Cases
Commercial bridge financing provides quick, short-term access to capital, making it an ideal solution for acquiring and improving value-add properties. It is also useful for restructuring existing debt or unlocking equity for new investments. Developers can leverage bridge loans for upfront construction funding, ensuring they meet critical deadlines. Additionally, these loans support redevelopment efforts, allowing property owners to enhance and reposition assets for higher returns. Often, bridge financing is used to stabilize a commercial property before a sale, recapitalization, or transition to permanent financing.
What is a Value-Add Commercial Properties?
Value-add refers to the acquisition of a building with the goal of adding value through renovations, improvements, or strategic management. The goal is to enhance the property’s appeal, increase tenant occupancy, and ultimately raise its market value. Common value-add strategies include upgrading the building’s physical condition, improving amenities, or repositioning the property in the market to command higher rents.
Key Factors That Influence Loan-to-Value (LTV) for Bridge Loans
When securing a bridge loan, one of the most critical factors lenders consider is the Loan-to-Value (LTV) ratio. This metric helps assess risk by comparing the loan amount to the property’s appraised value. A higher LTV means less equity in the property, which can impact loan terms, interest rates, and approval chances.
Why LTV Matters
- Risk Management
Lenders mitigate risk by keeping LTV at 75% or below, ensuring a property’s equity serves as a buffer against potential losses. Cost Considerations
Higher LTVs often lead to increased borrowing costs, such as higher interest rates or additional fees (e.g., a 2% origination fee).When evaluating LTV for a bridge loan, lenders assess the property type, borrower’s financial profile, and exit strategy—whether through refinancing or sale. Understanding these factors can help borrowers structure financing more effectively and secure the best possible terms.