A10 CAPITAL'S BRIDGE LOANS |
A10 Capital funds bridge loans to accommodate its customers’ unique commercial real estate situations. As a private portfolio lender, A10 Capital has the expertise and capability to creatively structure and quickly close commercial mortgage transactions typically avoided by conventional lenders. For more information on A10 Capital’s bridge loan program, click here or call us today at 877.577.5055. The following provides a synopsis of what bridge loans are and the bridge loan industry.
A bridge loan provides the customer with interim financing until a commercial real estate property stabilizes and permanent or next stage financing can be obtained from a conventional commercial mortgage lender to "take out" (i.e. pay back) the bridge loan and meet other capitalization needs the customer may have.
Wikipedia states that bridge loans are typically more expensive than conventional commercial mortgage loans due to the higher risk nature of the commercial real estate involved, thereby resulting in a higher interest rate, points and other costs amortized over a shorter period, as well as various fees and other "sweeteners" sometimes required (such as equity participation by the lender in some loans). To compensate for this inherent higher risk, a bridge loan lender may require cross-collateralization and a lower loan-to-value ratio; however, bridge loans are typically arranged quickly and require less documentation than a conventional commercial mortgage. An even more-compelling reason to obtain a bridge loan is the quick availability of funds that allows the customer to exercise a project opportunity AND retain control of the project … and the profits once the property stabilizes … since bridge loans can be utilized in lieu of bringing an investor or partner into the project to meet the customer’s short-term cash needs.
WHY SHOULD I CONSIDER A BRIDGE LOAN FOR A
COMMERCIAL REAL ESTATE PROJECT? |
Bridge loans are often used in connection with commercial real estate, whether it be to quickly close on a property, acquire commercial real estate from foreclosure, or take advantage of a short-term opportunity and provide additional time for the customer to secure a long-term conventional commercial mortgage loan. Bridge loans are typically repaid when the property is refinanced with a conventional long-term commercial mortgage lender, the borrower's creditworthiness improves, the property is improved or completed, a specific improvement or change that allows a permanent or subsequent round of commercial mortgage financing occurs, or the property is sold. The timing issue may arise from development phases with different cash needs and risk profiles as much as ability to secure a conventional long-term commercial mortgage loan.
A bridge loan is similar to a hard money loan in that both are non-standard loans obtained due to short-term, or unusual, circumstances and are often secured by a commercial mortgage. The difference is that hard money refers to the lending source, usually an individual, investment pool, or private company that is not a bank in the business of making high risk, high interest loans, while a bridge loan refers to the duration of the loan.
BRIDGE LOAN CHARACTERISTICS |
Wikipedia reports bridge loan interest rates secured by commercial mortgages are usually 12-15%, with typical terms of up to 3 years. A bridge loan lender will typically charge 1-3 points higher than a traditional commercial mortgage lender and require loan-to-value ratios that generally do not exceed 65% for commercial properties, based on current appraised fair market value.
Most banks do not offer commercial real estate bridge loans because they typically do not fit the bank’s lending criteria due to the speculative nature of the property, the higher level of risk, lack of full documentation, and other factors. A bank that issues bridge loans might also have difficulty justifying its lending practices to its investors and government regulators. Accordingly, bridge loans are more likely to come from individuals, investment pools, and businesses like A10 Capital that make a practice of providing bridge loans and are staffed with the expertise to get the deal done in a manner that meets the expectations and timeframes of the customer.
CAN A BRIDGE LOAN HELP MY ENTREPRENEURIAL GOALS FLOURISH? |
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A bridge loan is often used to finance an opportunistic commercial property purchase that requires the purchaser to close fast. The discount on the purchase price more than offsets the costs of the short term bridge loan used. |
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A bridge loan is often used to finance a commercial property being acquired at a foreclosure auction since the purchaser often has only 14-28 days to complete the transaction. |
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A bridge loan is often used to finance a commercial property that is being repositioned. Once the property is seasoned, the bridge loan is refinanced by a conventional commercial mortgage. |
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A bridge loan is often used to finance a commercial real estate property that is still in various stages of being leased up, since that property will have difficulty qualifying for traditional financing. Once occupancy stabilizes, the bridge loan is refinanced by a conventional commercial mortgage. |
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A bridge loan is often obtained by developers to carry a project while permit approval is sought. Once the project is fully entitled, a construction loan would then be obtained to take out the bridge loan and fund completion of the project. |
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A bridge loan can be used to “park” a maturing bank loan or CMBS loan until credit markets and long term rates revert to more reasonable levels. |
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