Typical Terms & Guidelines for CRE Bridge Loans
- Loan Amounts: $250,000 to $50,000,000
- Loan-to-Value: Up to 75%
- Loan-to-Purchase: Up to 80% for value-add projects
- Must have 15%+ cash for the purchase
- No lender on our site provides 100% financing
- Lien Position: 1st or 2nd (few lenders offer junior liens)
- Loan Term: Up to 24 months (some lenders will go longer)
- Interest Rates: 7% to 12%
- Origination Fee: 1 to 4 points (most charge 2 pts)
Deposits and Due Diligence Fees
It is fairly common for CRE bridge lenders to charge some sort of fee when the term sheet is signed. It takes a lot of time and effort to underwrite a commercial property loan, and there could be some hard costs involved – legal, appraisal (or BPO), environmental report, site visit and more. Even if the lender is local to the property and doesn’t require an appraisal, they may ask for a small deposit just so there is a commitment from the borrower.
Why Use a Bridge Lender
Many commercial real estate (CRE) investors use bridge loans from time-to-time for their property investments. Although the pricing is much higher than banks and conventional lenders, there are several reasons why a CRE investor or broker would seek a bridge lender:
- Speed – most bridge lenders close in 1-3 weeks
- Asset Based – most bridge lenders focus on the equity in the property
- Vacancies – most bridge lenders are willing to lend on properties with high vacancy rates
- Property Condition – many bridge lenders will lend on properties in poor condition
Bridge loans are private mortgages. The term “bridge” just means it’s a short-term loan.
Common CRE Bridge Loan Scenarios
Property Acquisition
When purchasing a commercial property, timing is the key factor to close the deal. Banks and other institutional lenders typically need a lot of time to underwrite the deal, and this is the main reason why CRE property investors will consider taking a bridge loan. The additional cost provides some peace of mind as far as timing goes. Once the property has been acquired, the investor can relax and take several months to secure permanent financing.
Reverse 1031 Exchange
The short time frame associated with 1031 exchanges make bridge lenders a vital asset for property investors when they are unable to line up bank financing before their deadline.
Refinance
We see a number of property investors turn to bridge financing for a straight refinance when their existing loan is maturing and they are unable to qualify for a conventional loan. A bridge loan will buy them some additional time.
Equity Cash Out
Property investors may need to tap the equity in their commercial property for a number of reasons – working capital, renovations, purchase another investment property. It is not easy to find bridge lenders that will provide a 2nd mortgage or any junior lien position. It’s more common in California, but for properties in other states, the lender will likely refinance the existing 1st mortgage (if any). Bridge lenders are generally more conservative with their LTV when providing cash out. So a lender that goes up to 75% for a purchase loan may max out at 65% for an equity cash out loan request.
CRE Bridge Loans Funded in the United States
Sherpa Capital Group LLC, a private CRE lender, funded a $2,200,000 first-lien position bridge loan secured by a mixed-use property in Downtown Buffalo, NY. The property’s value was estimated at $4,750,000, resulting in a loan-to-value ratio of 55%. The loan was used to pay off a previous balance of $2,700,000. The property is a 55,000-square-foot building with office spaces and apartments. The Borrower, an experienced real estate developer specializing in multi-family and workforce housing, required a quick closing as their existing loan with a regional bank was maturing and the bank was no longer extending loans. Conventional refinancing options for mixed-use properties in tertiary markets were limited. Sherpa Capital recognized the potential of the property and swiftly completed due diligence, conducted a site visit, and provided financing within two weeks. The Borrower had excellent credit. They plan to convert most office units into apartments, leverage historic tax credits, and eventually refinance with a local lender as an exit strategy. The interest rate was 15%. We charged 3% origination points, and the broker earned a $33,000 commission. The loan term was set at 12 months. This CRE bridge loan was funded in July 2024.
Hard Money Loan for Retail Property in North Tonawanda, New York
$250,000
Gelt Financial, a direct CRE lender, funded a $250,000 first-lien position cash-out refinance loan secured by a small 3-unit retail center in North Tonawanda, Niagara County, NY. The property value was estimated at $700,000 so our loan-to-value (LTV) was 36%. It was owned free-and-clear without any mortgages. The Borrower is an experienced real estate investor who needed quick capital for a new investment. The retail center had 3 tenants with long-term leases in place. The spaces were being used for a restaurant, a barber shop, and an office. The property was in excellent condition and is approximately 9,500 square feet. The Borrower had excellent credit. Their exit strategy is to refinance into a long-term loan within 2 years. The interest rate was 12.50% floating, and we charged 3% origination points. The loan term was set at 24 months. This hard money loan was funded in July 2024.
Yieldi, a direct lender for investment properties nationwide, funded a $10,000,000 first-lien position bridge loan secured by 520 acres of vacant land that is currently a mixed-use development in Hampton, GA. The property value was estimated at $40,000,000 so our loan-to-value was 25%. The loan proceeds will be used by one partner to buy out the other partner. They have signed contracts with three major homebuilders secured with $17,000,000 in contract prices. The LDPs (Land Development Permits) should be approved within the next 90 days, allowing the sales to proceed soon after. The Borrower had good credit. Their plan involves development, with an exit strategy of obtaining a construction loan. The interest rate was 14.99%. We charged 3% origination points and the broker earned a $200,000 commission. The loan term was set at 12 months. This refinance bridge loan was funded in June 2024.
Bridge Loan for Car Wash Purchase in Summerville, South Carolina
$231,000
Gelt Financial, a direct CRE lender, funded a $231,000 1st lien position purchase bridge loan for the acquisition of an operating car wash in Summerville, SC. We funded 60% of the $385,000 purchase price, while the Borrower contributed 40% cash at closing. The Borrower develops real estate and has previous experience with gas stations. The car wash was in excellent condition and was fully operational at the time of the purchase. It is approximately 1,712 square feet on 1 acre of land. It includes 3 self-serve car wash bays, 1 automated drive-through bay, and 5 external vacuum stations. The Borrower plans to eventually refinance as an exit strategy. The interest rate was 14% floating and we charged 3% origination points. The loan term was set at 24 months. This CRE purchase loan was funded in January 2024.