Learning the Basics of Multifamily Bridge LoansPaul Winterowd
In many cases, the amounts of money involved in many areas of commercial real estate are large enough to necessitate additional financing not commonly found in other areas of the industry. A good example is the multifamily bridge loan. This is a loan that brings immediate financing and offers the chance for a quick closing while the borrower waits for a longer-term solution to become available.
At Bonneville Multifamily Capital, we offer multifamily bridge loans ranging up to $50 million over three years. Let’s learn about the basics of bridge loans, and how they could benefit your next multifamily commercial real estate venture.
Differences From Standard Loans
There are several factors that differentiate bridge loans from more conventional kinds of loans:
- Term: Traditional mortgages span a much longer term than bridge loans, which typically only range up to two or three years. The name “bridge” is meant to signify a short waiting period while more permanent financing is secured.
- Interest rate: Bridge lenders take on larger risks, including liquidity, default and informational risks. For this reason, mortgage rates are generally higher.
- Amortization: Most bridge loans are interest-only, with little or no principal amortization. The full principal amount is usually due at maturity, and negative amortization and zero-coupon notes can be an option in some cases.
- Collateral: There’s a focus among bridge lenders on underlying collateral, rather than the typical emphasis put on creditworthiness.
- Timing/Flexibility: These loans can be provided in under 30 days, and have more flexibility in structuring and due diligence requirements. They can be expedited much more quickly than typical loans, which often take 90 days or more.
Why a Bridge Loan?
There are several reasons a borrower might look to a bridge loan, from the need to close a deal in a short period of time to a desire to take advantage of a limited-time business opportunity. Working capital can be an issue at this level, and there are some situations where reputable borrowers might nonetheless fail to qualify for a traditional institutional commercial loan.
Value in Commercial Real Estate
Bridge loans are vital in several areas of commercial real estate, including multifamily. Property owners may need a temporary loan to keep a property operating while a mortgage comes due, and bridge loans help many borrowers avoid foreclosure. Savvy equity investors often use bridge financing to acquire an attractive asset, then rehabilitate it and see the upside profits.
Want to learn more about bridge loans, or any of our commercial multifamily loan services? Visit Bridge Loans on our website, or talk to a loan officer at Bonneville Multifamily Capital today.