What is a Bridge Loan in Commercial Real Estate?
Bridge Loans for Office, Retail, Mixed Use, Self-Storage, Warehouse, Light Industrial, Seniors Housing and Healthcare Real Estate.
What is a bridge loan in commercial real estate? A commercial real estate bridge loan provides a short-term or interim financing solution. It helps bridge the gap for a short period of time until the sale or refinancing can be obtained for commercial properties. That timeframe can range from a couple of months to a couple of years, though typically maxes out at three years.
Also known as commercial mortgage bridge loans, these loan types are often used for the purchase, rehabilitation, and stabilization of commercial real estate properties including seniors housing, mixed-use, self-storage, warehouse, light industrial, healthcare real estate, and office. Bridge loans can be used when traditional financing (banks or agencies) is not a viable option, due to time constraints or other criteria that may make the borrower fall outside traditional lending parameters.
Bridge loans use a collateral-based lending approach, placing the greatest emphasis and weight on the cash flow and collateral value of the real property. In contrast, traditional finance lenders will place the greatest emphasis on credit history and other factors. Commercial real estate bridge loans offer a fast and flexible alternative to traditional capital. Banks and agency lenders typically take up to 120 days to close a loan, whereas commercial bridge loans typically close faster. Borrowers across sectors looking to finance value-add or opportunistic acquisitions in commercial real estate, or refinance a commercial real estate property, gain a competitive advantage by leveraging the flexibility and speed of a commercial bridge loan.
Utilizing a bridge loan as a strategic or specialized tool can benefit a variety of circumstances, especially when a borrower or investor is looking to acquire commercial real estate, refinance an existing property, or make improvements to refresh and reposition the building. When traditional capital is increasingly hard to come by, borrowers need an efficient and timely solution to continue to push business objectives forward.
A bridge loan isn’t the answer to every scenario, but neither is traditional bank financing. Short-term commercial real estate bridge loans are a viable alternative when time is of the essence, and you need execution certainty paired with fast, flexible capital tailored to your needs.
Since 2008, Wilshire Finance Partners has specialized in commercial real estate bridge loan financing with transactions ranging from $1 million to $10 million. Read more about our commercial real estate loan programs below and contact us for a custom loan quote.
Agency Finacing Structure Types
Eligible Properties: Commercial Real Estate
- Mixed Use
Loan Amount / Loan-To-Value: Up to 75% for Purchase / 70% on Refi
Rate Structure: 250-350 bps over index
Term: 5, 7, 10 yr. fixed / 20 yr. fix to float also available
Amortization: 25-30 yrs. and IO also available
Recourse: Non-recourse with standard exceptions, including for fraud and misrepresentation.
Prepayment Penalty / Lockout: Step down: 5,4,3,2,1
Eligible Properties: Commercial Real Estate
- Mixed Use
Non-recourse, assumable fixed rate financing for the acquisition or refinance of stabilized retail, office, industrial, and self storage properties
$1,000,000 to $10,000,000
5-10 year term; interest only periods up to full term are available
Loan to Value Maximum
75% of appraised value or purchase price constrained by Minimum Debt Yield
Minimum Debt Yield
7% for multifamily; 8.5% for office, retail, industrial, and self-storage; 10.5% for hotels
85% (physical) 80% (economic)
Domestic single asset borrowing entity is required. Foreign sponsors may be financeable
Risk-based pricing, varying with Debt Yield, amortization, LTV, DSCR, market and sponsor
Defeasance with a lockout period of 24 months from securitization. Yield maintenance may be used in certain circumstances
Third Party Reports
MAI Appraisal, Property Condition Report and Environmental Phase I Assessment are required; Seismic Reports are required for properties in Seismic Zones 3 and 4
Commercial Mortgage Quick Reference Guide
In commercial real estate, the equity multiple is defined as the total cash distributions received from an investment, divided by the total equity invested. Essentially, it's how much money an investor could make on their initial investment.
The loan-to-value (LTV) ratio is an assessment of lending risk that financial institutions and other lenders examine before approving a mortgage. Typically, loan assessments with high LTV ratios are considered higher risk loans, often accompanied by a higher interest rate.
Loan-to-cost (LTC) compares the financing amount of a commercial real estate project to its cost. LTC is calculated as the loan amount divided by the construction cost. Meanwhile, loan-to-value (LTV) compares the loan amount to the expected market value of the completed project.
(CapEx) are funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment. CapEx is often used to undertake new projects or investments by a company.
The combined loan-to-value (CLTV) ratio is the ratio of all secured loans on a property to the value of a property. Lenders use the CLTV ratio to determine a prospective buyer's risk of default when more than one loan is used.
CMBS stands for commercial mortgage backed security. In the case of commercial real estate, it refers to the loan being pooled with other loans and securitized, to be sold off to investors for a return. Hundreds to thousands of similar loans, varying in size, rate and collateral (property type) are bunded together for a blended rate of return. Investors may buy shares of these bundled mortgages.
CMBS loans, also known as Conduit Loans, are a popular source of capital for commercial real estate investors. Rates are competitive and are generally non-recourse, with a fixed term of ten years, though often have prepayment penalties and provisions to protect the guaranteed yield to investors.
A credit tenant lease (CTL) is a long-term lease agreement made between a property owner and a tenant with extremely good credit, typically a major corporation. Credit tenant leases are the basis for credit tenant lease (CTL) loans, which have some of the lowest default rates in the commercial finance industry.
Debt Coverage Ratio(DCR), also known as Debt Service Coverage Ratio (DSCR), is a metric that looks at a property’s income compared to its debt obligations.
The DCR/DSCR formula is Net Operating Income (NOI)/Debt Obligations.
Debt yield is simply a property's NOI as a percentage of the total loan amount (debt yield = property NOI/loan amount).
The gross rent multiplier (GRM) is a screening metric used by investors to compare rental property opportunities within a market. The GRM functions as the ratio of the property's market value over its annual gross rental income.
GPR is the maximum amount of rent money an owner or investor can expect to make from a property during a specific time period. Unlike a rent roll, which compiles all current rents from a property, gross potential rent assumes 100% occupancy.
Gross leasable area, or GLA, is the area in a commercial property designed for the exclusive use of a tenant. GLA typically includes mezzanines, basements, or upper floors, but not shared areas, such as public bathrooms or maintenance areas.
Non-recourse finance is a type of commercial lending that entitles the lender to repayment only from the profits of the funded project and not from any other assets of the borrower. Such loans are generally secured by collateral.
A recourse loan is a loan where the borrower or guarantors are personally liable for repaying any outstanding balance on the loan, in addition to the collateral itself.
A tenant improvement (TI) is an improvement that a landlord/property owner makes to a property to suit the needs of a new tenant. A leasing commission (LC) is a percentage-based commission that a leasing agent receives when they successfully close a deal between a landlord and a tenant.
The term capital at risk refers to the amount of capital set aside to cover risks. Capital at risk is used as a buffer by insurance companies in excess of premiums earned from underwriting policies.
Sponsor Contribution means the contribution by the Sponsor in cash directly or indirectly to Buyer in the form of common equity or preferred equity.