Bridge Loans

Bridge Loans are short-term senior debt loans that are utilized to ‘bridge’ the gap between two permanent loans. Bridge loans can be beneficial to a borrower to facilitate a quick closing, usually with less restriction than a permanent loan from a traditional lender. Bridge loans can be helpful to fix a short-term issue with a property, such as lease turnover or owner credit issues, or to capitalize on a fluctuation in the market. Term length is typically 6-36 months, with higher interest rates than permanent loans, but possibility for interest-only payments. Bridge loans are taken-out by capital from either sale of the property, or a refinance into a permanent loan.

Situations Suited to Bridge Loans:

  • A building owner purchased a property at below-market price, and took out a short-term construction loan with hopes to add value and increase rents up to market rate. At the end of the term of the construction loan, the property was occupied enough to achieve a DSCR needed to acquire a favorable permanent loan. In order to pay the balloon of the construction loan, the owner decided to take out a 12-month bridge loan, which will give them time to stabilize the property. At the end of the 12-month period, the property was fully leased, and the owner is able to successfully refinance into a long-term permanent loan.
  • A real estate investor finds an off-market, underperforming office building with a defaulted tenant, and makes an offer to purchase the property at a discounted rate. The investor uses bridge loan to acquire the property, and in 12 months is able to place a credit tenant on a 10-year lease, increasing the value of the real estate. The investor is now able to sell the property, and take a profit after paying back the bridge loan.