Bridge Loans in Commercial Real Estate: Financing and Flexibility in an Uncertain Market

Description

When used optimally, bridge loans provide a financing alternative for transitional properties where renovations, repairs, or leasing need to be done before a borrower can qualify for a "permanent" loan. Increased borrowing costs, higher interest rates, and a distressed commercial real estate market have created opportunities within the bridge loan market.

Bridge loans typically have shorter terms--between a few months and a few years. While these loans might have higher interest rates and costs than traditional, permanent financing, there are several advantages to using a bridge loan, including speed of execution and flexibility. However, with their utility also comes risk that must be carefully evaluated to ensure the loan makes sense for a borrower's goals and circumstances.

Bridge financing can take the form of senior, junior, mezzanine, or even preferred equity. Counsel should have a thorough understanding of each form of financing, and how best to define the relationship between the bridge loan and any other financing in any intercreditor agreement. Because bridge loans are typically floating rate transactions, special attention must also be paid to managing interest rate risk.

Listen as our authoritative panel discusses the structuring and nuances of bridge loans and provides key considerations when weighing the advantages and disadvantages of these short-term financing solutions.