Why Use Bridge Loans for your next CRE Acquisition
Commercial real estate (CRE) investors who are expanding their property portfolios commonly use bridge loans when money is needed before long-term financing is available. Banks, credit unions and non-bank alternative lenders normally offer different loan terms and fees depending on the creditworthiness of the borrower and other factors. Following are three typical reasons that CRE developers choose bridge financing when purchasing new properties.
Maximize Purchasing Power
Cash is a valuable asset. Rather than tying up the company’s cash reserves, a bridge loan often provides cash to purchase most types of properties or fund renovations before the property qualifies as collateral for traditional bank financing. Banks typically will not make loans on property purchases if the building will not have a positive cash flow when the builder takes possession of the asset, which frequently happens when the properties need updating before they can be fully occupied with long-term tenants. Builders may have multiple properties in various stages of completion with separate bridge loan funding for each project. Maximizing your capacity to make additional purchases by preserving cash can put the builder in a strong position should another opportunity arise.
With short-term bridge financing, property owners are in a better position to decide how to get the most from their properties. They may renovate and resell for a profit, or remodel and fill with occupants agreeing to multi-year leases. Since loans are usually repaid by either take-out financing after the project is complete or with the sale of the property, the developer retains flexibility because current cash flow is not impacted. With bridge loans structured as credit lines, builders can choose to use only the amount of funding required as they complete a project over time.
Respond More Quickly
Some opportunities require a quick response, which may not be possible if the builder is relying on traditional bank financing. Financiers familiar with making bridge loans can often be more responsive and fund loans in a shorter period of time once their underwriting due diligence is complete.
Get More Business Done
Bridge loans continue to be a popular financing vehicle for builders who are completing transactions that are highly leveraged or that have a quick closing timeframe. Other builders use them when they are renovating a property or transitioning it to a new use before the building earns positive cash flow. Many bridge financiers offer flexible loan terms that can be structured to fit each individual project, with loan to asset value ratios that often exceed traditional loans. Building owners who evaluate bridge lending options frequently find excellent solutions to support their projects’ financing needs.