For all of the bridge lenders out there, what are some of the ways that you size your loans on value-add deals?
For core/stabilized assets, lenders seem to usually just size based off of the debt yield, using LTV and DSCR as secondary checks - pretty straightforward.
But for a value-add/transitional deal, are there any standard sizing metrics/constraints? Do you mainly just size to a certain LTC on total project costs (acq. + capex/TI/LCs)? Are you underwriting the asset to stabilization and applying an LTV? Are you sizing off of in-place NOI and then offering good news future funding contingent upon some benchmark that you define (i.e. % leased, min. debt yield etc.)
I know each bridge deal structure is inherently unique and dependent on the asset class, sponsor, location etc. I am just trying to get a feel if you guys have any quick back of the envelope methods that you use to quickly size a loan when you have a deal cross your desk. Thanks in advance for any feedback.
Size off stabilized, not in-place (so higher proceeds) but you'll pay for it in spread and structure (if you want non-recourse). This is assuming your in-place debt yield would still be something reasonable like 4%. Banks will give you a lower spread for around the same proceeds but there will likely be a recourse component. This info is for transitional value-add plays not new construction.
When you size to stabilized and mention that the borrower will pay for it in structure, how do you determine how much of the total proceeds you will fund upfront, as opposed to future funding?
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