Commercial Real Estate Bridge Lending

Insights about bridge loans for commercial real estate. What are the typical guidelines - maximum LTV, interest rates, points, fees, term, closing time? Why CRE investors use bridge loans? How to find reputable direct CRE bridge lenders in the United States. And read summaries of funded bridge loans.


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.

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.