A Bridge to Success through Short-Term Financing

Originally published on Scotsman Guide

With recent rent and sales-price growth in multifamily housing and other commercial real estate sectors, mortgage brokers and lenders should be paying more attention to the use of bridge loans to help clients in need of short-term financing. Clients use bridge loans to support a project until they can secure permanent financing.

Also known as gap financing or interim financing, these types of short-term loans are popular with clients who are looking to quickly close property acquisitions and execute value-add business plans. These types of loans are often interim financing vehicles for multifamily homes or other commercial-property acquisitions.

Occasionally, such loans are used for cash-out refinance purposes, with the money going for rehabilitations or renovations, lease-ups or interest reserves. With quick closing periods and one- to three-year terms, bridge loans provide temporary financing until the borrower secures a permanent takeout loan with an agency, a bank, a commercial mortgage-backed securities lender or even the U.S. Small Business Administration (SBA).

As mentioned above, a main use for the loan is to put additional funds into rehabilitations and renovations. This allows property owners to raise rents, maximize proceeds and increase bottom-line cash flow which, in turn, increases a property’s overall value. Property owners or investors can then secure permanent financing at the new valuation and pull more cash out when they refinance out of their bridge loans.

Faster service

Bridge loans have advantages over various loan programs from agencies such as Fannie Mae and Freddie Mac, the SBA and the U.S. Department of Housing and Urban Development (HUD). There may be a variety of situations that necessitate a quick closing, such as a hard deadline or a competitive bidding situation. A bridge loan may close in only a few days or weeks.

Conversely, the lengthy timelines and requirements for loan approvals from groups such as HUD and SBA can impede the timing of transactions. An SBA loan can take up to three months or longer to be approved while some HUD loans can take five months or more. A borrower also may encounter unexpected delays during the permanent loan approval process, which may result from issues with the property title, structural problems, environmental concerns or financial-performance issues.

These are some of the reasons why bridge loans may make sense for clients of commercial mortgage brokers. There are two types of bridge loans that are well suited to meet current market demands, particularly for smaller-balance real estate that is too small for debt funds or other institutional lenders.

First, non-recourse bridge loans are a popular option for properties with some in-place cash flow. These loans require no personal guarantee (other than for so-called “bad boy” acts in which a party prior to closing willfully took part in intentional misconduct). Such loans can allow up to 20% cash out for improvements. Pricing typically starts at the prime interest rate plus 395 basis points, with a loan-to-cost (LTC) ratio as high as 80%.

Second, so-called “performance” bridge loans may be a better fit for quick-close deals or heavier-lift properties that don’t have in-place cash flows. These types of bridge loans can be used for acquisitions, rehabs, refinances and stabilization efforts, with up to 50% available for construction expenses. Pricing typically starts at 5.99% with up to 75% LTC.

Although bridge loans have many benefits, there are some important risks and potential drawbacks for borrowers to consider. Bridge loans typically have higher interest rates than other types of financing. They also are subject to floating rates, which are currently on the rise. For properties that experience a decrease in rent-growth rates, valuations level out after a period of increases. Additionally, lenders generally require strong credit and a certain level of in-place cash flow. If the borrower is unable to repay the bridge loan, the lender may be able to foreclose on the property used to secure the loan.

Bridging sectors

These types of loans play critical roles in the multifamily housing market, which many experts believe is poised for continued growth in 2022. For instance, Freddie Mac estimates 4% multifamily rent growth across all markets this year. The organization also expects to see overall multifamily origination volume to continue rising.

With rents continuing to climb and interest rates remaining low — but trending upward — investors will want to strike while the iron is hot. Bridge loans can close in less than 30 days, even before the next forecast rise in rates. At the same time, they allow multifamily investors to execute rehab and value-add plans for capitalizing on rent growth.

In addition to multifamily housing, the self-storage, health care and hospitality sectors also may benefit from bridge lending. While many industries have struggled due to COVID-19 cases, self storage has grown as more people transition to remote work or downsize their homes. According to StorageCafe.com, about 53 million square feet of rentable storage space was completed in 2021 alone. As a result, investors are gravitating toward self-storage deals to expand or improve existing operations. Bridge loans provide a deal structure that allows for quick execution, offering advantages for investors.

While the self-storage and multifamily housing markets are on the rise, the health care and hospitality industries are still recovering. There are distressed assets in these sectors that need short-term capital influxes to restore operations. With bridge loans, these businesses can make improvements and stabilize cash flows.

Bridge loans can be a valuable solution when lenders and brokers are discussing investment financing options with their clients. Quick closings, flexibility and non-recourse provisions can fit a variety of business-use cases and provide an influx of cash.

Partnering with an experienced bridge lender can help clients find competitive pricing and attractive deal structures. Select lenders will pay a fee to their referral sources on closed deals. Lenders and brokers should act quickly if their clients meet the requirements for a bridge loan. There’s no better time than now to take advantage as rates begin to rise.


Finding a Sweet Spot in Middle Market Assets

Originally featured on Globe St

“We do not want to compete with institutional market. We are supporting emerging sponsors. That is the business that we know and that is the business that we are good at,” says Alex Cohen, CEO of Liberty SBF, in this podcast interview. Liberty SBF is an active bridge lender, operating in the $5 million to $15 million price range across asset classes, which has been a sweet spot for the firm. 

Like many lenders, the firm focused on PPP and other essential loans, but now that the pandemic has started to retreat, the firm is returning to its core business model, where bridge loans are at the epicenter. With so much capital chasing deals, there is plenty of demand. “We reverted back to our core lending platform in the late summer early fall, and we have just seen robust demand.”

Liberty SBF has a non-recourse bridge loan, which is in high demand. The firm takes a thorough look at the business plan, and is particularly attracted to deals that Cohen says require a ”heavy lift” meaning that they  require a more involved renovation and a significant capital budget. 

In an exclusive podcast interview on Globe St, Cohen tells all about the firm’s bridge lending activity, and why he is so bullish on the sector. Listen now.


Renewed Investor Focus on Bridge Loans is Welcome News for Commercial Lenders

Originally published on MPA Mag

With another fiscal year nearly over and the worries of COVID fading slightly, many lenders in the commercial sector are tracking new investor preferences as well as overall trends for commercial loan types to suit current market needs.

For Liberty SBF, renewed investor interest in commercial bridge loan opportunities is a big focal point.

As Alex Cohen, chief executive officer with Liberty SBF, pointed out to Mortgage Professional America, “We are back in bridge lending in a big way.”

Funding over $2 billion in loans to commercial property investors, as well as small to medium businesses, Liberty SBF’s business model rests firmly on a specialization in small-balance commercial lending for loans from $500k to $15 million.

While offering different types of conventional and government-guaranteed loans, Cohen highlighted two new bridge loan products that will be a primary focus for Liberty SBF in 2022 based on increased market demand.

Light lift bridge loans

Recognizing the upswing in investor interest in bridge loan options following a noticeable dip in overall bridge loan activity during COVID, Liberty SBF recently announced the introduction of a bridge loan product catering to an untapped niche in the market.

“This is a non-recourse, floating rate bridge loan for financing ranging from $5 million to $15 million and I think that the big hallmark of these deals is that they are smaller balance,” Cohen explained.

Strong fundamentals for commercial real estate, new and enhanced loan products have emerged.

“These loans are non-recourse – the collateral for the loan is the property rather than the borrower – and they fall in the 5% range in terms of rates,” Cohen added.

The feature, however, that enables Liberty SBF’s light lift loan to stand out from other bridge loans on offer comes down to the size of the deal.

Most bridge loans with similar features cater to the $10 million-plus market. Liberty can go down to the $5 million level, which is better suited for smaller to medium businesses’ financing needs.

 “There are a lot of debt funds out there providing non-recourse financing like this. I think the size of our loans differentiates us from other debt providers in the market for this type of product,” Cohen reflected.

“The big caveat is that we need to see some in-place cash flow for those property types for a borrower to qualify for those types of deals. Most of the collateral relates to multifamily with some exposure to commercial and hospitality,” Cohen further highlighted.

He illustrated that the bridge loans can be used for various purposes. “Whether it be for acquisition or refinancing, a borrower is executing some sort of business plan. These are primarily deals that have some sort of cash flow in place.”

Heavy lift bridge loans

Contrary to the lighter lift option product offered by Liberty SBF, the second bridge loan option starts at a higher price point; however, there is no requirement for in-place cash flow.

This product is geared more towards construction, specifically for adaptive reuse purposes, or quick closes, and is considered a heavier lift loan.

“Although we see the need for ground-up construction, we are more focused on financing towards converting an existing structure into multifamily. For example, we’re starting to see some interesting opportunities in the realm of hospitality-to-apartment conversion,” Cohen stated.

If the borrower presents a more extensive business plan, Cohen explained, Liberty SBF is well-positioned to offer financing options to address the investor’s specific requirements.

“We are excited about those types of opportunities. There is a strong demand for heavier lift bridge loan products in the market. The whole realm of commercial financing is in such high demand right now,” Cohen summarized.

The year ahead

Currently, there are several factors driving the commercial sector. Chiefly, low interest rates and the continued need for rental opportunities, as well as distinct housing shortage across the country.

Even with a slight upward trend in interest rates in the new year, Cohen predicts that commercial lenders will see bright prospects on the lending horizon. The main trends that are influencing the mortgage sector today will likely continue well into the new year. Construction demand will remain high, as well as the need for financing solutions to address housing needs.

“We are excited to continue to look at opportunities. We have a small window of opportunity between now and the end of the year to close loans that hit our pipeline. Beyond this, we are certainly optimistic as we move into the first financial quarter of 2022,” Cohen concluded.


Rent Growth Is Fostering Big Demand for Bridge Loans

Originally published on Globe St

Value-add apartment investors are back in action, and they are driving a boom in the bridge lending market. It’s all thanks to the great migration during the pandemic. As people traded urban living for secondary markets, including tech hubs, apartment rents in small metros and suburban markets climbed to record heights—and the trend hasn’t stopped in 2021.

“Rent growth has supported transitional business plans where sponsors are buying properties with the idea of investing additional capital into those properties or executing a rental increase plan,” Alex Cohen, CEO of Liberty SBF, tells GlobeSt.com. “We are seeing a lot of bridge demand from borrowers that are executing on those types of business plans.”

In the current market, value-add business plans are most viable for mid-tier investors focused on properties in the $5 million to $25 million price range and located in cities with strong rent growth. “We tend to finance what we call emerging institutional sponsors,” says Cohen. “Those are middle market investors that have 10 to 15 projects under their belt.”

There is liquidity to meet the demand for bridge loans, but Cohen says that it is limited, especially compared to other areas of the market, like core and core-plus investment. “Liquidity in this area in the market, particularly for non-recourse loans, is not as deep as in the institutional market,” he says. “That is where we think believe we can add a lot of value compared to debt funds and institutional investors, that’s why we play in that space.”

For that reason, securing a bridge loan on a value-add deal takes a strong business plan, and more importantly, a realistic gauge of rent growth in the market. Cohen is bullish on long-term rent growth, but he also doesn’t expect the same rents to increase at the same velocity as they have for the last year. “We believe that we will continue to see increased rent growth, but it will plateau,” he says. “Borrowers need to understand the rent growth story in the submarket where they are operating, and they need realistic pro forma rents with realistic operating expenses.”

Rising interest rates—which many experts have come to expect—could derail the activity in the value-add market. However, Cohen says that the foundational supply-demand imbalance in multifamily will keep fueling rent growth, serving as a strong counterbalance to rising interest rates. “The market is closely watching interest rates, and conventional wisdom would suggest that a rising rate environment and rising inflation would put negative pressure on asset prices, but I think there is a fundamental story here that will continue to support asset growth, particularly in emerging markets for the next two years,” says Cohen.

“We feel very good about 2022.”


Just Closed: $14M Non-Recourse Bridge Loan for Multifamily

In late December 2021, Liberty SBF closed a $14 million non-recourse bridge loan at 70% LTV for two Class B multifamily properties in Dublin, GA. The Sponsor plans to use the loan proceeds to renovate and restore the 202 units across the two properties, with the goal of increasing cash flow and overall value.

Once renovations are complete, the borrower plans to raise rents by 25-30% to be in line with the local market. Located along the second-busiest and fastest-growing seaport on the East Coast, the asset also includes sufficient land to build 60 or more units. The Sponsor plans to refinance out of the bridge loan to a long-term Agency loan after executing the business plan.

The Sponsor is an experienced multifamily property owner with over a decade of experience. Investing their own capital alongside that of their investors, the Sponsor seeks out properties that are undervalued due to poor management and/or design.

Interested in applying for a commercial real estate loan with Liberty SBF? Click below to learn more about our secure online application process.


Just Closed: $5.1M Bridge-to-504 Loan for Industrial Property

Liberty closed a $5.1 million bridge loan for the acquisition of an industrial building in Las Vegas, NV. The Sponsor required interim bridge financing for a quick close and will refinance to a low-cost, high-leverage SBA 504 loan in the spring of 2022. Our team is currently working on SBA approval.

Currently valued at $7.5 million, the Subject is a 61,400 SF industrial building situated on a 4.84-acre site. The property comprises a large warehouse space with 26-foot ceilings, several offices, and 42 parking spaces.

The borrower is an industrial packing materials company offering supplies such as moving boxes, packing foam, moving kits, printing labels, poly bags, and more. With 95% of sales coming from e-commerce, the business grew nearly 40% from 2019 to 2021. The acquisition allows the owners to increase warehouse space by 15,000 SF and gain greater control over operating costs.

Interested in applying for a commercial real estate loan with Liberty SBF? Click below to learn more about our secure online application process.