Covered Land Bridge Loans

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

Pay Rate for Commercial Real Estate Bridge Loans

If you’re seeking a bridge loan for a commercial property purchase or refinance, a unique payment structure called Pay Rate (aka Payment Rate) could reduce the monthly interest payments by almost half. In this article, we’ll explain how the pay rate structure works, the typical pricing, and how to find lenders that offer this unique payment structure for bridge loans.

This topic is only relevant to short-term bridge loans with a minimum loan amount of $1,000,000. There may be some lenders out there that will consider a payment rate structure for residential investment properties, but we’ve only seen it offered for commercial properties, including multifamily, office, retail and industrial.

If you get a short-term bridge loan for a commercial property purchase or refinance, your interest rate will likely range from 8% to 10%, and you’d have to make monthly interest payments during the loan term. But with a pay rate structure, the private lender would allow you to pay a lower interest payment during the loan term, and the remainder would be due when you pay off the loan.

Example Pay Rate Scenario

If your bridge loan amount is $4,800,000 and the interest rate is 10%, your monthly payment would be $40,000. With a pay rate option, the interest may be cut down to 5% during the loan term, so your monthly payment would be $20,000. The $20,000 per month difference would be deferred to when you pay off the loan by refinancing or selling the property. With or without the pay rate, the total interest due for the 12-month term is $480,000.


Not having to make those extra monthly payments during the loan term could be a huge benefit for the property investor. The pay rate option is mostly beneficial in cases where the property’s income is not enough to service the debt.

It could be a property which has significant vacancy, but the plan is to lease up and then refinance with a long-term conventional loan. Or if your commercial property is vacant and not generating any income at all, but it’s on the market for sale.

Even if the property generates more than enough cash to service the high debt payments, most property investors would likely prefer to reduce the monthly interest payments and keep the extra cash on hand.

The pay rate is not always half of the total interest rate. There is no set standard in the industry. Every lender that offers the pay rate structure will have a minimum amount of interest they have to collect during the loan term.

Although most CRE bridge loans range from 8 to 10 percent, we’ve seen a number of lenders go down to 6 or 7 percent. However, you likely won’t find a lender offering the pay rate option when the total interest rate is less than 8 percent.

Here are a few sample structures for a $4,800,000 loan amount with a 12-month loan term:

  • 10% Interest Rate = $480,000
    • 6.5% Pay Rate = $312,000
    • Monthly Payments: $26,000 instead of $40,000
    • $168,000 due at loan payoff
  • 9% Interest Rate = $432,000
    • 6% Pay Rate = $288,000
    • Monthly Payments: $24,000 instead of $36,000
    • $144,000 due at loan payoff
  • 8.5% Interest Rate = $408,000
    • 5% Pay Rate = $240,000
    • Monthly Payments: $20,000 instead of $34,000
    • $168,000 due at loan payoff
  • 8% Interest Rate – $384,000
    • 4.5% Pay Rate = $216,000
    • Monthly Payments: $18,000 instead of $32,000
    • $168,000 due at loan payoff

In addition to the interest rate, all lenders charge an origination fee which typically ranges from one to two and a half points. The maximum loan-to-value for most bridge loans is 70% for a purchase and 65% for a refinance. The maximum term is typically twelve months, but it could go up to twenty four months.

Why Most Lenders Don’t Offer Pay Rate

The pay rate option in commercial real estate bridge lending is extremely rare. A very small number of lenders in the United States will consider it. Although it’s a great offering which could help lenders win more deals, it may not be possible due to the lender’s capital structure.

Most bridge lenders manage a private mortgage fund capitalized by many investors who expect to receive a monthly distribution. If most of the loans in the fund’s portfolio were pay rate structures, the monthly distributions would not be steady, and it just wouldn’t make sense for the investors because a consistent return is one of the main reasons people invest in mortgage funds.

Bridge lenders who don’t manage a fund are likely funding the loan from their balance sheet and then selling to the secondary market. It’s highly unlikely that any loan buyer would consider buying a loan with deferred interest payments, unless they are buying at a steep discount.

So there are only 2 capital scenarios in which a pay rate structure is possible for a lender to offer. Either they lend their own cash and don’t use any external capital sources, or the lender is backed by investors who don’t need consistent monthly income from the loans they fund.

This mainly includes family offices and ultra high net worth investors. For these types of capital providers, the trade-off to taking a lower monthly  interest payment is having their money parked in very conservative loans, secured by prime commercial properties, located in primary urban markets.


How to Find Lenders That Offer Pay Rate

You can find direct private/hard money lenders right here on our website, and we have a filter you can use to find lenders that offer the pay rate structure.

  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. Click SHOW ADVANCED FILTERS
  5. Look for the Payment Structure field, and select Payment Rate
  6. Click APPLY
  7. View each lender’s profile to learn about their guidelines, background and more
  8. Click the green CONTACT button and reach out to the lender directly

 

Top CRE Bridge Lenders Offering Pay Rate

Below are the top private lending companies listed on PrivateLenderLink.com that offer the pay rate structure for commercial real estate bridge loans.

BridgeCore Capital logo

BridgeCore Capital is a direct private bridge lender providing short-term loans secured by first trust deeds on commercial real estate in primary markets nationwide.  Over 90% of their loans have a pay rate structure. Here are some of their lending guidelines:

  • Loan Amounts: $1M to $30M
  • Maximum Loan-to-Value: 65%
  • Interest Rates: 6.99% to 9.99%
  • Loan Term: 6 to 18 months
  • Property Types: Multifamily, Office, Retail, Industrial

BridgeCore will only consider properties in primary markets, and they will not consider any specialty properties.

One unique thing about BridgeCore is they rely on their own in-house valuation and hardly ever require formal appraisals. Also, they tend to be lower on origination fees (points) than other lenders.

BridgeCore has been listed on PrivateLenderLink.com since 2019. We have had a relationship with the company’s owner since 2012.

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Top CRE Bridge Lenders in the United States

There are quite a few private lending companies that offer short-term bridge financing for commercial real estate (CRE) deals in the United States. Although many of them have a similar offering, each lender offers a unique structure for their loans, and slight variations in pricing.

Private Lender Link is a great place to find reputable lenders and learn about their guidelines. Before we get into the list of top CRE bridge lenders on our platform, we want to clarify the criteria for this list:

  • Loan Amounts above $1,000,000
  • Lends Nationally – 45+ states
  • Purchase and Refinance Loans only – NO construction, land development, junior liens

Top Private Lenders for Commercial Real Estate in the USA

Below is a list of the top private/hard money lending companies listed on Private Lender Link that offer short-term bridge loans secured by commercial real estate. All of them lend nationally, with the exception of a few states that most private lenders avoid, mainly due to strict licensing requirements or unfavorable foreclosure laws.

avatar financial group logo

Avatar Financial Group has been in the private lending business since 2003 and manages a debt fund that is very well capitalized. The company is based in Seattle and has funded loans all over the country. In addition to the core commercial property types, Avatar will consider hotels. Another unique thing about them is they don’t mind lending on portfolios of multiple properties. Cross collateralizing multiple commercial properties can be a complex process, but Avatar has done a number of these transactions.

Here are some of their lending guidelines:

  • Loan Amounts from $500K to $25M
  • Core Properties and Hotels
  • LTV up to 70%
  • LTC up to 70% (for value add projects)
  • Interest Rates: 8.99% to 9.99%
  • Loan Term: 0 to 24 months

Avatar Financial Group is very good about publishing their funded deals, and you’ll find a number of transactions posted on their profile page.

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BridgeCore Capital Logo

BridgeCore Capital is a newer lender in the market but offers a very unique payment structure that no other bridge lenders on our platform offers. They call it “Pay Rate Protection,” and it enables the borrower to make interest payments of just 4.99% during the loan term, and the rest is deferred until the loan pay-off. This is not offered for all loan requests; sometimes it makes more sense to go with a standard interest payment structure.

BridgeCore’s origination fees are typically lower than their competitors. They typically charge 1.0 to 1.5 points. They will only consider core property types in primary markets, and their max LTV is 65%. They don’t offer any additional funds for rehab value-add projects.

With BridgeCore Capital, recourse is almost never required. They are able to do their own valuation for most deals, so an appraisal is rarely required. Unlike most other bridge lenders, they will allow a junior lien in the capital stack. The company is based in Beverly Hills but lends throughout the United States.

Here are some of their lending guidelines:

  • Loan Amounts: $1M to $30M
  • Interest Rates: 6.99% to 9.99%
  • Origination Fee: 1 to 2 points
  • Core Properties only – Multifamily, Retail, Office, Industrial
  • LTV up to 65% LTV
  • Loan Term: 6 to 18 months
  • No Prepayment Penalty

We have had a relationship with the company’s Principal, Elliot Shirwo, since 2012 when he worked with another bridge lender in Los Angeles. Elliot is very well known in the CRE brokerage community and has a great reputation.

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owemanco logo

Ontario Wealth Management Corporation, more commonly known as Owemanco,  is based in Toronto and was established in 2001. Although they are a Canadian company, most of their lending is done in the United States. Their interest rates have historically been more competitive than their competitors in certain markets. Owemanco funded bridge loans in many states, but their favorite markets are New York City, Chicago and Miami. In these 3 markets, they will consider ground-up construction and heavy rehab loans. For all other areas, they only do standard purchase and refinance bridge loans but will consider some specialty property types such as hotels, healthcare, automotive, and others.

Unlike most other CRE bridge lenders, Owemanco does not charge a large deposit when the initial term sheet is executed. Instead, they charge a modest fee just to cover travel expenses for the site visit. For most deals, they rely on price opinions from local brokers and don’t typically require formal appraisals. They are very comfortable lending to foreign real estate investors, especially Canadians.

Here are some of their lending guidelines.

  • Loan Amounts: $1M to $20M
  • Interest Rates: 7% to 9%
  • Origination Fee: 1.5 to 2.5 points
  • LTV up to 65% LTV
  • Loan Term: 12 to 36 months
  • No Prepayment Penalty

Owemanco has been listed on our platform since 2014, longer than any other CRE lender in our network. We visited their office in Toronto and shot some videos which you’ll find on their profile page.

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Typical Terms for CRE Bridge Loans

Here are some of the typical guidelines and characteristics of most commercial real estate bridge loans in the United States:

  • Average maximum LTV is typically 70%
    • Up to 75% for multifamily in primary markets
    • Up to 65% for office, retail, industrial
  • Loan Term ranges from 6 months to 3 years
  • Interest Rates range from 7.5% to 10%
    • May go up to 12% for value add projects or specialty property types
  • Origination Fees (points) range from 1 to 3 points
  • Personal Guaranty may be required, although some lenders never require recourse

Click the buttons to view each lender’s profile. Contact us if you’d like any lender recommendations for short-term bridge lenders throughout the USA.