Commercial Bridge Loans Explained | Castle Commercial Capital - YouTube

Great! This is Malcolm Turner of Castle Commercial Capital welcome to our

YouTube channel we're going to talk about bridge loan financing and the

basics of how they work. First off, what is a bridge loan? Well, a bridge loan is

basically short-term financing that you would use when you're trying to bridge a

gap between where the property and the deal is and where conventional financing

would come into place and there's a gap there where I can't qualify what my deal

can't qualify or my property can't qualify for commercial conventional

financing. So, bridge loans come into place when commercial traditional

financing is not an option either because of speed, credit, occupancy, or it

could be condition, or other issues. So, let's talk about for a moment what those

things mean. When we talk about speed, sometimes you get into a situation where

you need financing and I cannot go 60 days, 45 days, or 30 days even. I absolutely

positively have to close in like ten days, two weeks, three weeks, seven

days. When speed is of utmost importance, where I'm going to lose the property totally whether I'm in default, or my loans maturing, or I'm in a

situation where I'm buying a deal and if I can't close in two weeks the seller's

are going to move on to someone else because I'm out of contract then that's

where speed comes in. And, traditional conventional commercial financing

that will take anywhere from forty-five to sixty days or longer

is not going to work in those scenarios. That's where a bridge loan can come in.

Second thing is going to do with credit.

Where credit can be an issue, let's say my credit score I had a bump in my

credit score down, and I'm sitting at a 620. Well, with traditional commercial

financing I'm going to have a tough time with a 620 credit score, when they really

want to see 690, 700, 680 at the lowest, okay.

So, if I'm talking about best rate financing that's what I need. If I'm

sitting at at 620 or 600 that's gonna be a problem. I'm not gonna even qualify.

Again, that's where a bridge loan can come in. Let's say also I'm dealing with

occupancy issues, where, maybe I've got a building and it's dark and I got zero

occupancy, or, maybe a situation where my occupancy is down to 50 percent.

What we call stabilized occupancy is at 85%. If I'm at less than 85%

occupancy of my commercial property, lenders frown on that. And traditional

again, conventional financing they're not going to want to do it because they don't know

at 50% are you on your way up or your on way down. "We're not gonna take a chance

come back when you get that other 30% , 35% occupancy we'll work with you". This is

where a bridge loan can come into play. Also condition, maybe I've got a

situation where my property is in need of major rehab , I've had a lot of deferred

maintenance on it, I got to replace major systems, maybe it needs a new electrical, it

needs new plumbing, it needs new HVAC, those kinds of things where again

traditional commercial financing may not apply in those scenarios.

Where they'll say "Well get that stuff done then come back and we'll refi you"

or you don't qualify at all because maybe you got multiple issues. Maybe you

got credit issues and occupancy issues and condition issues and it's just too

much where the deal can't happen. This is where bridge loans can come in because bridge

loans will allow for all of those things. Now let's talk about property type. When

you deal with bridge loans you can do a bridge loan on multifamily, you can do a

bridge loan on office, you in the bridge role industrial, most forms of commercial

real estate, hotels as an example, retail, all those things can qualify for bridge

loans. And, so just about anything you can think of can qualify for bridge loans.

The only challenge you may have is if it's an owner-occupier property.

Okay so if I got a mechanic shop and I'm it's my shop

get out of it I'm using it there's no tenants it's not investment real estate,

then getting a bridge loan might be more challenging, but, there's still bridge

lenders out there that will do that Let's talk about loan-to-value. Typically,

with bridge loans you're going to see a loan to value of 60% on the low end to

80% on the high end. There's always exceptions to the rule, but generally

it's going to be in that 60 to 80 percent range and it will vary depending

on the condition of the property, credit, income, the type of property that it is.

Example, you can typically we get a higher LTV on multifamily than you can on say

retail, as an example. So, you will have some variances as well, and it will

also have some variances between lenders obviously, but, generally you're going to be in

that 60 to 80 percent range. Now, as far as the loan amount, loan amount you're

going be generally $250,000 up to $25 million which is pretty big gap. A lot of

bridge lenders won't even sniff your deal out if it's not worth a million

dollars, okay. So, if you're under a million and you're between $250,000 and a

million, you can still get a bridge loan but your universe of providers is much

smaller in that range. Let's talk about the term length. Bridge loans are

temporary financing. It's just meant to bridge you from where you are now where

you're not qualifying for traditional financing to where you can get full

financing. And, so in that case this is where you're looking at anywhere from

6 months, 12 months, 18 months, 24 months are typical loan terms for bridge

loans. And, if you get to the end by the way, if you got a 12-month bridge loan

because you thought it would take you 12 months to cure the defect in the deal,

maybe the defect was credit, and in 12 months I'm expecting my credit's going to be great.

But, at 12 months, my credit's only at 660, not at 680 where I need it to be, I can

can ask for an extension with that bridge lender and usually those extensions are

in either 6-month or 12-month timeframes.

Quick closings, major, major, major advantage of bridge loans is that you

can close fast. And so, sometimes you may have a property that can qualify for

traditional commercial financing, but, you do a bridge loan anyway because you're

negotiating a discount on your deal relative to the speed that you can close.

Especially, if you've got a seller who has had a couple deals fall through with

financing. And then you come along, maybe you're offering them a good price, but

they see financing and they're like oh, here we go again, okay. And, if they've

been strung out for four months, five months, six months, dealing with various

lenders that can't finance their deal or borrowers who can't get financing, they

get very wary when someone brings them a deal. Even if it's full price offer, if

it's got financing, they're like you know what I've done this dance already.

I don't think I want to play anymore, okay. This is where a bridge loan

could come in. Where with a bridge loan you can say you know what, I know you got your

property listed at a million dollars. However, I can close in three weeks,

but, I would like to buy it for $850,000, okay. I have investors that do that

kind of stuff all the time, and they use the speed of the transaction to

negotiate down a discount. Because all we basically mean to do a bridge loan

qualifying-wise is title, appraisal, and a credit report. It's not a whole lot

involved relative to the paperwork. So, it gets down to how fast can I get my

appraisal done on that property. And, as fast as I can get my appraisal done, usually

with a bridge loan you can close within seven to ten days of that appraisal

being complete. And, so I know at Castle Commercial Capital, we're a bridge lender.

We can definitely close within seven days, all day long, once we've got the appraisal,

everything else moves most quickly after that point. When you have a

situation where speed is key, bridge loans,

nothing's going to be better or faster than bridge loan. Flexibility of documentation,

I just sort of alluded to that, with a bridge loan you don't have the

documentation requirements of tax returns, operating statements, rent rolls,

those kinds of things. So with a bridge loan, you can get a deal done

and have no paperwork at all. There's no income statements, again just looking

at title, appraisal, and a credit report. That's about all you need.

Let's talk about uses. There's many different uses of bridge loan which i've

alluded to, obviously, one is purchases, you can use them to buy property. You can

use them to buy property and fix property. So if you're thinking

about fix to flip, fix and flip with rental property, you can also do

fixed to flip with commercial and there's some people that do that. They

buy a commercial property that has a bad use, or it's not its best

and highest use, as we like to say in the business. And, they may redevelop it into

something else, and then as soon as they get it full, and they get a tenant in

there, and they've rehabbed it, then they go and sell it off to another investor.

So, you can use bridge loans for that. The other thing I mentioned earlier,

obviously, if it's a dark property, and you have to go in get the lights cut

back on, get the utilities cut back on, do a lot of deferred maintenance, get tenants in

there. You can use bridge loans to fund the acquisition and the renovation that

can take place. You can also use bridge loans when you have a lot

of TI, tenant improvements. So, I've got a property, maybe my

occupancy is at 50 percent, maybe that's why I got a deal on the, let's say it was a

strip center, as an example, or an office building. There's a lot of deferred

maintenance. I can't get good quality tenants in there to fill up my

building because I've got old carpeting, I've got, a decrepit HVAC system.

Well, with a bridge loan, I can get the money I need to put the modern tenant

improvements that good quality tenants want to see, to rent at a high value. Once

I get those improvements done, I've now got the financing in place to

pay off my contractors. I lease it out to tenants at market rate prices,

and now my building is worth more, because in commercial, your building's

value is a direct function of the amount of income that it's bringing in. So

anything you can do to the building that's going to increase the income,

increase the lease rates that you can charge your tenants, the better off

you're going to be. The other thing you can use a bridge loan for is when

you 've got a partner buyout. So, let's say I got a partner and he wants

out. He wants to get out and wants to go retire to Florida

or whatever. I need to buy this guy out. Well, now I need a loan, it's not quite a

purchase, because I already own it. So it's not really a purchase transaction.

It's not really a cash out transaction, in the way it's typically

structured, because the cash is not going to me. And, in a cash out refinance,

all the cash is coming to me. Here it's going to someone who's walking away.

So, a partner buyout is sort of a hybrid transaction, between a purchase and a

refi, because you're taking cash out of the property like you would in a refi,

but, like in a purchase you're giving it away to someone to buy

their interests in the LLC that typically owns the property. And so,

bridge loans are great for doing partner buyouts. Also, if you have a minority

interest, and you're not someone who's buying the property, you just want out.

Okay, you have 20% ownership in the LLC and you're like man I need to make this

illiquid liquid. A bridge loan is a good way for you to get your exit

strategy out, and get your 20% turn into liquid dollars that you can use to do

something else with, and not have to refi the whole building. Because

sometimes you have prepayment penalties, you have defeasance on the

existing paper that's on that property, and it's just not feasible for the

existing partners to refi the existing loan to pay off someone. And, that's where

you can have a bridge loan as a second, on a property

that can pay off that minority partner and make them go away.

The other thing to use a bridge loan for, that you can't do with traditional

financing, is when a loan is going into default. You've got a loan that's maturing

and I haven't made all my payments, I've been late on payments, and I'm in

danger of getting foreclosed on. I can get a bridge loan on that property, and

pay off my old lender and make them go away, and still get my deal done.

And, then whatever the defect was that caused me to be late, maybe it was an occupancy

issue, and now I can have the money through the bridge loan to do the maintenance I

need to get occupancy up, maybe I need to fund a marketing program, again same

thing. The bridge loan will give me the money I need to cure the defect in the

deal, so that's 6 months, 12 months, 24 months down the road, I can now qualify

for traditional financing. So, I hope this was helpful to you guys.

Bridge loans are an awesome device. Every commercial real estate investor should

have it in their toolbox, for various scenarios. If you need any more advice,

if you have questions feel free to give me a call at 1-800-598-5530.

I'd appreciate if you like us, go down, hit that bell, and subscribe to our channel,

if you haven't already. We'd really appreciate that. Have a great day. Again,

it's Malcolm Turner with Castle Commercial Capital.