Bridge Loan Financing
Borrowers can use bridge financing to capitalize on value-added investment opportunities, which has a lower level of cash flow or debt service coverage than required for conventional financing. In addition, borrowers can access bridge funding to:
- Repurchase existing debt from lenders at a discount;
- Acquire non-performing loans secured by real property, and
- Acquire equity interests in limited partnerships, often at a discount to its intrinsic value due to its illiquid nature.
The information below provides a general outline of the terms sought by bridge lenders in today’s market. The below terms may vary depending on the financial strength and experience of the borrower and the type of property being financed.
| 1. | Structure: | 1st lien on the underlying real estate |
|---|---|---|
| 2. | Product Types: | All property types |
| 3. | Market: | Nationwide |
| 4. | Loan Size: | $750,000 minimum; no maximum loan amount |
| 5. | Loan Term: | Up to 3 years, with options for additional 1 year extensions |
| 6. | Maximum LTV: | Typically, 65% to 80% of an “as-is” appraised value or actual purchase price, whichever is less |
| 7. | Interest Rate: | Approximately 7% – 12% per annum, depending on project leverage, debt service coverage, evaluation of the underlying real estate and strength and experience of the sponsorship |
| 8. | Debt Service Coverage: | No minimum debt service coverage ratio |
| 9. | Amortization: | Interest only |
| 10. | Prepayment: | Negotiable lockout period, typically no less than 6 months |
| 11. | Origination Fees: | Typically, 1 to 2% of the loan amount |
| 12. | Exit Fees: | Negotiable |
| 13. | Reserves: | Real estate taxes, hazard insurance, replacement reserves, redevelopments costs (if any) and mortgage interest (as may be required) |
| 14. | Ownership: | Single asset, bankruptcy-remote entity |
| 15. | Recourse: | Depends on the lender. If the loan is non-recourse, the lender will typically require the borrower to provide limited recourse for “bad boy” or standard carve-outs, including fraud, misapplication of funds, waste, property taxes, and environmental issues. |
| 16. | Closing: | 1 to 4 weeks from the date after loan approval |
| 17. | Third Party Reports: | MAI appraisal, Phase 1 environmental, feasibility and any other reports as required by the lender |
If you would like to discuss your project and funding requirements, please call us at 513-621-1031 or send us an e-mail summarizing your project.