Haven't done much short term bridge debt in my career, but I understand it has become popular in the recent cycle given the amount of value-add deals.
I have seen a lot of debt funds doing these types of deals, 2-3 bridge loans up to 90% LTC. Just curious how these deals are getting priced on a non-recourse basis. Typically 1 point in, 1 point out? What about on the interest rate, assuming it's interest only?
The other question I had, assuming 90% LTC, would the lender allow all of the various closing costs, fees (acquisition fee, origination fee, mortgage brokerage fee, equity placement fee, etc) to be rolled up into the total cost, and then finance 90% of that total amount?
Is 90% or higher really even achievable? Most of the deals I am underwriting are highly sensitive to the leverage, so even going from 85% LTC to 80% LTC can make the backend IRR go from attractive to average pretty fast.
Who is lending at 90% LTC!
In NYC I have at most seen 80% LTC or around 80% LTV for bridge, without bringing on a mezz or pref equity slug. For this product I am seeing 1-2pt origination with 1-2pt exit. The debt range is in the 8-14% range for non-recourse. With the higher of that range for hard money/ loan to own guys.
But seriously who is lending that high up the capital stack for senior financing, I would like to know?
Mortgage broker here. Usually i see about 80% LTC. Usually 1 in, 1 out, or 2 in, 0 out. debt is between 9-12% usually. lower % with lower leverage.
I haven't seen any 90% (that includes the total amount including all fees etc). Highest I've done is 85%. 2 in, 0 out, 18 month bridge for a redevelopment MF in brooklyn. 9.75%, $9.8M loan amount (includes mortgage recording tax and all fees). Borrower was an extremely "bankable" guy though. HNW, amazing credit, lots of experience; etc.
YoungBiz, in the scenario you mentioned on the 85% LTC, how much of a factor was the borrower in getting that deal done? If the situation had been with a first time sponsor who had gone out and syndicated the equity through friends and family, do you think you would have denied the loan request?
it was 99% BC of the borrower. If you are a first time sponsor, your best bet is about 70% LTC IF you have HNW. 60% if not.
I don't get it. Why is bridge financing in so much demand right now and what is the purpose? Is this temporary just to close on the land or some portion of the acquisition of the real estate and then get repaid out by the senior? Bridge is very expensive financing so it makes no sense from an equity perspective to keep in the cap stack. Also, I haven't seen the costs being capitalized unless the sponsors/jv really have not committed any equity to the deal, which would make the entire deal highly suspect.
This debt structure is nothing new but today now more common place. I will say I've seen many more financial institutions offering "bridge" financing. Basically banks and lenders are now offering bridge financing but in essence the terms you are seeing are historically similar to private money deals.
6-18mo notes. These days maybe 10% yield, so 9%+1pt for a year is 10%, 8%+2 for 12mo, still 10%, etc. 8%+3 for 18mo...still 10%. Terms vary but you get the picture.
Bridge financing is generally quasi construction terms where LTV and LTC are consideration. Seller carries are much more common. With High LTC of say 70% and a 10% seller carry, combined LTC can be fairly high. Rehab funds are built in, interest reserve for 6mo+ and so on.
These deals have been getting done since I got in the business in 1995.
Bridge is very popular these days with value add/rehab deals. These are short term loans. Some of these total project timelines are 24 months. IE, (MF Rehab) 1 month acquisition, 1 year rehab, 4-5 month leasing period, 4-6 month sale period.
Also most of the bridge lenders can close extremely quickly. 2 weeks to 2 months. Traditional banks don't usually compete with that.
Most of the deals I've done with bridge, it is 1 sponsor (or a few partners) putting up the equity. It's usually almost the same amount (sometimes cheaper) to pay out 10% on a 80% LTC, than 4% on a 50% LTC, and than 15% on a pref eq; etc. The blended rate is the same if not cheaper.
There are plenty of bridge lenders doing 80% LTC loans in the L+400-700 range. 10% sounds more like a hard money rate to me, today.
L+400-700 is either full recourse or partial recourse in my experience. No?
No. Lots of non-recourse lenders in that bracket. The difference between those rates and the "hard money" rates is that the bridge lenders in that bracket will typically be looking for simpler value add plays. For example, most will likely want the property to cover debt service at closing.
Standard terms I would compete with would be 80% LTC, 3+1+1 term, floating rate ~L+500, 1.0% origination & exit fees, non-recourse except for bad-boy carveouts.
You also might be surprised at how aggressive regional banks are getting, pushing leverage on non-recourse loans. When I worked for a bridge lender, if I chased a deal hard and lost, it was normally to a bank, not to another "debt fund" type of shop.
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