Question for you guys,
You want to get a bridge loan for acquisition of property but also need funds for TI/LC's. You want to set it up so that you can get an extension on the bridge loan for those TI/LC's. How do you go about structuring/modeling something like that?
I figured it would be like some sort of LOC where you draw down instead of taking out bridge loan for full amount (avoid paying interest on total amount for term of loan) - how would a lender structure/do this?
| +52 | Leave brokerage to be GP | 12 | 2d | |
| +49 | New Comp Database - Google Form (Now with Data Validation) | 24 | 2d | |
| +24 | Seeking Career Guidance in Real Estate Development Post-Graduation | 3 | 3d | |
| +23 | Going out on your own | 4 | 2d | |
| +23 | Spreads over SOFR/UST | 8 | 1h | |
| +22 | Real Estate = complicated + underpaid | 15 | 2d | |
| +22 | REPE/Development GPA | 15 | 5d | |
| +20 | High achiever that doesn’t want to work weekends | 12 | 10h | |
| +17 | Fisher Brothers | 6 | 2d | |
| +15 | Can you exit from Fund to Asset management or Investment in Real Estate ? | 22 | 18h |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
I've done this on a couple of big value-add deals, where the lender finances say 60-65% of LTV then extends 100% of TI/LC funds going forward, subject to DSCR/DY tests. Commonly called "good news proceeds". Subject to a total funding limit, and the lender obviously has to approve each new lease.
Having a TI/LC "holdback" is very common for a term loan/bridge loan. Modeling it is pretty simple. The structuring is also simple. The bank/debt fund would generally not use a revolver setup (in my experience), but would merely describe in the loan agreement the terms under which you'd be allowed to make a draw. There would likely be conditions on overall performance as well. For example, if the building has fallen to a certain occupancy, you may be required to pay half the TI/LC instead of using 100% bank funds. You only pay interest on the loan outstanding, not the loan commitment, so you wouldn't need the LOC structure. In a construction loan, the funds are only drawn as construction progresses (and after all the equity is put into the project). Also, not sure what you mean by the extension on the bridge loan.
Yeah banks and debt funds do this all day. It wouldn’t be a “bridge loan” for TI/LCs you would simply structure the term of your acquisition loan based on your projected hold period. Your acquisition costs would be funded upfront somewhere between 50-65% based on the deal and what lender you’re going with and then all future funding (ie TI/LC, capex) would be funded as you incur those costs through a draw. Again depending on the lender and the deal you can get up to 100% of those costs subject to meeting certain thresholds. Typically the lender will hold you to either a debt yield or dscr hurdle and many will take it a step further and require that each lease you sign meets a certain NER (net effective rent) test in order to get funding those deal specific costs.
Pretty simple to model with your acquisition costs funded at closing and then you receiving additional funds for your TI/LCs as those deals are executed assuming you meet all leasing hurdles.
You can structure it so that money is held back for TI/LC. Any bank would be able to accommodate that.
Yeah generally they can future fund leasing costs / capex that are improving the quality of the asset.
I generally have an input toggle of a month that ties to our refinance date. So say the floating rate loan is going to be replaced by a permanent in month 36, just an if statement that grows the debt balance by any leasing costs / capex if it happens before month 36.
Any recommendations where to look for bridging finance brokers in the UK?
One consideration that you might want to build into your model is a forced funding which a lot of lenders use. For example, after x months, if you haven't leased up/funded the dollars as expected, those dollars get funded into a reserve and you have to start paying interest. Lenders don't like having money committed that doesn't ever get funded/earn interest.
You're already paying for interest on full amount of loan (including portion committed) for a holdback situation if I'm not mistaken
Nope, most I’ve worked with only have interest accrue on drawn portion
Ratione iusto dolor facere in fuga. Alias quae et omnis non reprehenderit nisi. Neque id eos at vel eius alias. In nesciunt non molestias perspiciatis recusandae.
Id quidem exercitationem reprehenderit. Explicabo voluptates accusamus saepe. Porro totam quis dolorem ullam. Aperiam consequatur explicabo provident repellendus fugiat dolorem. Perspiciatis fugiat eum ut ab ea in. Ut vitae voluptatem enim corrupti.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...