Bridge Lending 101

I used to work as a multifamily underwriter for a bridge lender.

We didn’t necessarily care about how the property was currently performing.

We cared more about the sponsor teamthe business plan, and their experience to execute said business plan.

Bridge lenders issue short term capital for sponsors to improve, renovate, or reposition properties so that they can qualify for permanent financing options.

Key word being short term.

Bridge lenders want paid back.

To make sure they get paid back, bridge lenders will analyze your deal and create a stabilized proforma. They will then use their stabilized projections to ensure the DSCR will meet or exceed permanent financing requirements.

Example:

Here’s how a bridge lender could look at your deal.

Any bridge lender will most likely compare their stabilized proforma to the Sponsor and appraiser’s projections.

After making careful considerations to rents and expenses, they will be able to determine how confident they are that the deal will qualify for permanent financing. Thus, the lender getting paid back.

This is also known as the take out. Or taking out the bridge loan and refinancing into permanent debt.

Takeaways:

  1. For any deal you send to a lender, be sure to clearly define your business plan.
  2. Explain exactly how and when you will execute said business plan.
  3. Articulate your experience and track record for why you would be a worthy borrower.