By Charley Babb
Do you remember John McCain’s famous “Bridge to Nowhere” speech from 2005? As the Arizona Senator, and then later as the Republican Presidential nominee (2008), McCain denounced a transportation bill with earmarks that included federal funds for an $80 million bridge to an island in Alaska with 50 inhabitants. Hence, the nickname a ‘Bridge to Nowhere’.
After returning from the 2017 Mortgage Bankers Association Commercial Real Estate Finance Conference “CREF/MBA”, I am here to tell you that there is in fact capital out there for just about every flavor of “value add” deal in the commercial lending world – a bridge loan to everywhere! There are several lenders offering loans for the acquisition and repositioning of commercial real estate assets of every class. The basic premise is to provide the debt capital to get an investor from point A (acquisition) to point B (stabilized and enhanced value): thus, the term “bridge loan”.
The lending space in the capital markets has become somewhat crowded and therefore competitive. We can now procure loans for most clients in all the main groups of asset type: multifamily, office, industrial, self-storage, retail and hospitality. Previously, size mattered; smaller deals were shunned, but today bridge debt is available for balances as small as $5 million. A broader scope of both asset quality and location is also able to attract this financing; deals no longer necessarily require a going-in debt service coverage which allows for financing either partially or completely vacant properties. However, the ability to demonstrate that the property’s performance will underwrite a reasonable takeout of the loan via refinance and/or sale of the asset is a key criterion that must be met.
Though each lender has specific metrics for underwriting and quoting a loan, one can generally expect the following range of terms:
- Loan amounts between $3 to $100 million;
- Loan-to-cost ratio between 65-85%;
- Loan-to-stabilized-value of 60-75%;
- Primary loan terms of 1 to 3 years;
- Extension options up to a total loan term of 5 years (for a fee);
- Floating interest rates of 30 day LIBOR + 475 to 700 basis points;
- Interest only for the term of the loan;
- Future funding opportunities for capital improvements and other accretive expenditures;
- Lender origination fees of 0 to 2 points;
- Lender exit fees of 0 to 2 points;
- The prepayment flexibility will likely be subject to some level of minimum interest earned; and,
- Non-recourse, with standard carve-out provisions.
We currently serve several clients by procuring loans of this nature for investment opportunities. Therefore, we know that now is a great time to capitalize on the liquidity in the bridge lending space of the debt markets.
Charley Babb is the Managing Principal of Metropolitan Capital Advisors Denver office and can be reached via email – firstname.lastname@example.org. We seek to assist our clients with their commercial real estate financing needs and welcome the prospect to evaluate your opportunities with you.