Bridge loans (sometimes also called “hard money loans”) have gotten a lot of attention recently because of the surplus of commercial-mortgage backed securities (CMBS) that are scheduled to mature over the next few years. A recent report by Trepp LLC (a well-respected financial analysist group) predicts that “60 percent of the entire CMBS public-conduit universe [will be] maturing in the next three years” (https://www.trepp.com/knowledge/research/). This is more than double the number of CMBS loans that matured from 2012 to 2014. With so much competition for commercial funding, it seems likely that not all of these loans will qualify for immediate refinancing through conventional lenders. This is where bridge loans come into play (and why they’ve become such a hot topic of lending conversations). Here are three examples of situations in which bridge lending—short-term loans that are used until permanent financing can be obtained, can be useful.

3 Situations that can benefit from Bridge Loans

1. Underperforming property with potential. You may encounter a property that has had improvements completed but hasn’t realized its full potential. For example, a retail property that was renovated but then experienced an increase in vacancies, perhaps due to a construction project on a neighboring property that temporarily restricted access, is the perfect candidate for a bridge loan. An experienced investor can use a bridge loan to purchase the property, and use the time bought by the loan to lease up the property with new tenants and improve the income stream so that the property can qualify for permanent funding and pay off the bridge loan when it comes due.
2. Short-sale property. A short sale can provide an alternative to foreclosure for a property owner who has a property whose value has dropped below its loan balance. Bridge loans are a perfect source of funding for a short sale because it provides investors with quick cash to take to the bank, which is keen to write nonperforming debt off of its balance sheet.
3. Consolidating debt from multiple properties. If a borrower has notes coming due on multiple properties at the same time, a bridge loan can be used to pay off the multiple loans and consolidate them into one loan that is less complicated and potentially more attractive to lenders. For example, if a borrower has two mixed-use properties and a retail property that each have ballooning payments coming due soon, the borrower can seek out one bridge loan to pay off all of them rather than trying to acquire three individual loans. This simplifies the mortgage structure in addition to needing only one closing rather than three. And, in this way, the bridge loan buys time for the borrower to procure more permanent financing for each of the properties.

Bridge loans are useful in any situation in which a borrower needs more time and fast funding because they provide short-term relief in a short timeframe.

If you have a bridge loan request or any questions about Montegra’s private capital bridge loans, contact us at 303-377-4181.