Bridge and Short Term Loan Programs
Bridge and short term loan programs often provide needed breathing room while a property is undergoing rehabilitation, re-positioning or is waiting for a long-term permanent mortgage loan process to be completed. Commercial banks and hedge funds are the traditional lenders for short term loan programs since these loans are usually held to maturity, rather than securitized and sold. Darach Advisors has advised on and placed many short term loan programs. Generally speaking these are quickly done because the underwriting team makes a “fill or kill” decision on the front end of the process. It is therefore vital that all relevant information is reviewed, packaged, and presented correctly. Further, it is extremely important that the “exit strategy” for short term loan programs is clearly understood and achievable.
Short term loan programs are typically 12 to 18 months when a property is awaiting new management to take effect, minor capital improvements are being performed, and/or the property is awaiting cash flow growth and stability to allow a permanent loan to be placed. Property repositioning due to major capital improvements are generally 36 months. Extensions are negotiated up front.
Multifamily, office, retail, hotel, student housing, mini storage, manufactured housing, and industrial
$5,000,000 and up. No upper limitation
Experienced and well-capitalized for-profit owners only. Single-asset entity structure. No cash-out or deferred equity unless negotiated and collateralized
Top-end loan recourse and/or pledge of ownership interests is often required
Virtually always interest-only priced over the 30-90 day LIBOR and dependent on the risk assessment. Interest rate “floors” and “caps” should be bought by the borrower.
None. A principal reduction may be required upon an extension.
Total Loan to Cost
Generally-speaking (a) 80% for multifamily, (b) 80% for strong, anchored retail, (c) 75% for non-anchored retail, industrial, and office, (d) 65% for hotels, and (e) 60% for manufactured housing, student or mini storage.
Minimum 1.20-1.25 debt service coverage using a stressed debt constant or a minimum yield to the lender
While not always required, some of the additional features are:
- Lock box or “cash flow sweep” upon failure of a periodic performance test
- Capitalization and reserve of interest payments due
- Escrows for taxes and insurance and leasing commissions
- Escrows for capital improvements anticipated (in other words, the funds the borrower intended to use from equity)
These types of loans require an expert to provide sound advice and propose successful solutions. Contact us for a consultation and we’ll be able to advise you on the best short term loan programs for you.