In this guide, we’ll explain the meaning of covered land, the typical lending guidelines for these properties, and how to find private lending firms that will consider lending on them.

What is Covered Land?
Covered land is a commercial property that has an existing structure on it which will be redeveloped into a different property in the near future. The property types are primarily multifamily, office, retail, and industrial, but hotels and other specialty property types are frequently re-purposed and redeveloped as well. Here are a few examples:

  • Old shopping center will be redeveloped into apartments
  • Motel will be taken down to build a new office building
  • Uninhabitable apartment complex will be redeveloped into a mixed-use property
  • Car wash will be redeveloped into a single-tenant retail property
  • Auto dealership to be redeveloped into an industrial distribution center

Covered Land deals are not always re-purposed. It could be an old building redeveloped into a newer building in the same asset class. Whatever the case is, a short-term bridge loan can be used by commercial real estate investors to acquire covered land or refinance their existing mortgage during the pre-development phase.

Here are 3 scenarios in which an investor or developer could use a bridge loan for covered land deals: 

  • The property investor is purchasing covered land and plans to get it entitled within 1 to 2 years and then sell the project. The bridge loan would be used to finance the acquisition which will be paid off with a sale of the entitled project to a developer.
  • The Investor already owns the property, wants to develop it, and needs to cash out equity which will be used for pre-development soft costs. A bridge lender would provide a short-term refinance loan which will be refinanced by construction loan.
  • The property investor is a developer who wants to purchase covered land which is already entitled, but not shovel-ready. The bridge loan would be used to finance the acquisition which will be paid off with a new construction loan once the project has building permits.

It may be possible to get financing for the land purchase and the vertical construction from the same private lender, but only a small percentage of private bridge lenders provide ground-up construction loans. And not all of them will consider funding the covered land purchase. Some only provide funding when the project is shovel-ready. So the property investor typically has to get 2 separate loans – one of the covered land pre-development, and another for the vertical construction.

Maximum Leverage for Covered Land

The maximum loan-to-value or loan-to-purchase price for covered land typically ranges from 50% to 65% of the as-is value.

It varies based on the location and the development stage. If the project is entitled and located in a primary urban market, you may be able to get up to 65% LTV. For unentitled projects, some lenders will still go up to 65% if it’s in a prime location. And the lender will determine the leverage based on the as-is value, not the future value of the project once it’s built.

Covered land is still essentially land, and it could be a risky loan for any private lender, so most lenders will be conservative when it comes to leverage. The key element for lenders considering covered land loans is the exit strategy. Whether the plan is to pay off the bridge loan with a sale, or a construction loan, the lender has to feel confident in the ability for the project to get entitled or approved.

Interest Rates for Covered Land Bridge Loans

The interest rates for covered land typically range from 8% to 10%, but it could go up to 12%. As with leverage, the pricing too varies based on location and development stage, plus the investors experience and financials could be a factor. And all lenders charge origination fees which typically range from 1 to 3 points.


How to Find Bridge Lenders for Covered Land Deals

You can find direct CRE bridge lenders right here on our website.

  1. Start at the Commercial Bridge Lenders page
  2. Type in a state or major metro area, and click SEARCH
  3. Click REFINE RESULTS in the Filters section
  4. Look for the Property Type field, and select Covered Land (or Commercial Land)
  5. View each lender’s profile to learn about their guidelines, background and more
  6. Click the green CONTACT button and reach out to the lender directly