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.


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.


Bridging the Gap with a Bridge-to-Agency Loan For Multifamily Properties

Agency-based loans through the Federal Housing Administration (FHA), also known as HUD, Fannie Mae, and Freddie Mac have plenty of advantages, making them the preferred long-term financing option for many investors in the multifamily market.

However, the lengthy timeline and requirements of an agency approval impede the timing of a transaction, forcing a borrower to consider less-attractive permanent financing in the form of a conventional bank loan or commercial mortgage-backed securities (CMBS) loan. When this happens, having a strong bridge lender on speed dial can make a commercial mortgage broker look like a hero to a borrower.

In this article, we discuss situations when bridge-to-agency loans for multifamily property make sense as an alternative to agency loans.

The Solution: Bridge Loans

For a borrower whose long-term business plan relies on the various benefits of agency financing, a reasonably priced bridge loan for multifamily buildings that offers a flexible exit strategy is an excellent short-term alternative. The right bridge loan will provide time for the sponsor to execute a business plan and maximize proceeds on a refinance from bridge into their permanent Agency financing.

According to a December 2015 report from the Congressional Budget Office (CBO), about one-third of the more than 100 million renters in the U.S. live in a multifamily property. Multifamily assets such as apartments and condo buildings comprise more than 14 percent of all housing in the country and serve as homes for many low- and moderate-income families.

For this reason, the U.S. government has an interest in making sure there is sufficient liquidity for the acquisition, refinancing, and renovation of multifamily properties. Guarantees made by the federal government through a variety of agencies — including government agencies like FHA and indirectly through government-sponsored enterprises Fannie Mae and Freddie Mac — have bolstered the multifamily market.

Agency Lending

Agency-based loans provide an attractive non-recourse option for multifamily investors. With loan-to-value (LTV) ratios as high as 85 percent, fixed interest rates as low as 3 percent, and terms as long as 35 years, there are many reasons why agency loans are so popular. In addition, the introduction of the Freddie Mac small-balance loan program in 2014 expanded some of these benefits to loans as small as $1 million.

Agency Market Levels - March 2021

Many non-agency permanent loans place market restrictions on properties that agency loans do not. An FHA loan, for instance, comes with no population or geographic restrictions. This expands the inventory of apartment buildings that a borrower can consider purchasing. In addition, the age of an asset is not as important to an agency lender as it is to other permanent lenders, who have an appetite for newer or recently renovated properties.

A borrower might be attracted to an agency loan because it benefits their long-term plans. Agency loans for multifamily properties offer higher-leverage financing, for example. A different permanent loan might have a much lower LTV ratio than the borrower needs and coming up with extra cash for a down payment can be a deal breaker. Agency loans also are non-recourse, a huge benefit to investors who do not want or are unable to provide a personal guarantee. Rate-sensitive borrowers also like agency loans because the government guarantees the mortgage risk on the secondary market, allowing for more competitive pricing. Finally, after a loan has seasoned and improvements are made to increase a property’s value, an agency lender might offer a second-position loan, allowing the borrower to take cash out.

Get a quote on a bridge loan from Liberty SBF »

The Borrower’s Timeline

Every mortgage broker knows there are a lot of moving parts in a deal and one small detail can hold up closing. Agency loans are not perfect for every situation and, for all their benefits, they do come with a few downsides. 

Time is of the essence in almost every deal. Unfortunately, agency loans are not known for sprinting hare-like toward closing. If a borrower wants to take advantage of the 35-year fixed rate on an FHA loan, for example, approval can take 6 to 12 months. When a borrower has funds in an account for a Section 1031 like-kind exchange, they will need to use them to purchase a new investment property quickly. This puts a hard deadline on closing the transaction — 180 days from selling one property to acquiring another. Alternately, there might be a competitive bid situation where the seller has other options. In both cases, agency financing will probably not meet the needs of the borrower because agency loans take more time to underwrite and close.

The property itself might also pose a stumbling block. A problem might come up in the closing process, such as title, structural, or environmental issues, that delays the loan approval. In these cases, a borrower can capitalize on an income-producing property by closing with a bridge loan while these issues are worked out, which could take weeks or months to resolve.

Finally, a property might be desirable for the borrower but just isn’t performing to the underwriting standards of a specific agency. Fannie Mae and Freddie Mac require a property to be 90 percent occupied for at least 90 days to be eligible. Given enough time, a borrower might demonstrate the required occupancy needed to satisfy an agency’s requirements, and a bridge loan offers breathing room to stabilize the property.

Oftentimes, borrowers in these situations go with permanent loans that have less attractive terms than agency loans. In these scenarios, a bridge loan converted into permanent financing through an agency is often a better long-term economic decision for the borrower.

Bridge Loan Features

A bridge loan for multifamily properties can give the borrower the ability to accomplish everything they need. They can close under a tight timeline while securing agency financing to replace the bridge loan at a later date. The right lender can help a broker save the day. It’s important to look for a lender that has capital market experience, knows agency financing and can execute in a short time frame. While no short-term financing program is a universal fit for every borrower, there are certain situations that make a bridge-to-agency loan a good solution. Your lender should know which products are the right fit and offer a solution at a reasonable cost to the borrower.

Bridge Loan Features

Get a quote on a bridge loan from Liberty SBF »


Flexibility is key when choosing the right bridge loan. A borrower should be allowed to prepay at any time with no more than six months of yield maintenance on the loan. The bridge loan should also close very quickly, preferably in less than a month. The whole idea is to give the borrower control over the situation as quickly as possible, whether it’s by stabilizing a property or utilizing 1031 funds that have negative tax implications if not dispersed by a specific date. A bridge loan that takes too long to close doesn’t solve any of these problems.

Comparable Leverage

A bridge loan also must have comparable leverage to an agency’s permanent loan so the borrower doesn’t have to come up with too much additional out-of-pocket cash. For stabilized or close-to-stabilized properties, the bridge loan should have a single-digit interest rate. In the end, a borrower should expect some additional costs, but to help mitigate sticker shock, a commercial mortgage broker should look for origination fees from a bridge lender to be in the 1-2% range.

In Closing

For a broker with a client purchasing a multifamily property, having a good bridge lender in your back pocket can salvage a deal that looks like it might go off the rails. The broker becomes a hero and they can potentially earn an extra commission while still offering the borrower the best deal possible. If your client must close on a multifamily property but an agency loan is causing a roadblock, a bridge-to-agency loan scenario is a great alternative to less desirable permanent financing.


Multifamily Property Loan Closed: $1.7MM Bridge Acquisition Loan

Liberty SBF provided a $1,700,000 in Bridge financing to acquire a multi-family property located in Greensboro, NC.

Read Liberty’s White Paper on Bridge-to-Agency Loans for Multifamily Sponsors, Mortgage Bankers, & Agency Lenders.

Liberty SBF offers personal service for SBA 504Conventional & Bridge loans for owner-user properties across the US. We’d love to help you.


10 Articles About CRE From Liberty SBF

Liberty SBF has become a thought leader in commercial real estate finance with articles published online and in major industry media outlets. Below are 10 articles published by Liberty SBF or in influential publications with the company’s input.

1) Non-Bank Lending Is the Solution for Small Business CRE Loans

Strong demand for capital in the commercial real estate sector is expected to continue for the foreseeable future. Historically low interest rates, a robust economy, and strong employment numbers are boosting a surge in CRE demand across the country. People might assume that all commercial real estate lenders are alike, but there are many types of financial institutions that work with CRE borrowers.

What is a non-bank lender and how is it different?

2) Think Retail is Dead? Think Again!

Despite what you might be hearing in the news, in today’s strong economy, retail trade continues to grow. April 2019 saw a year-over-year 3.1 percent increase in US retail sales

Find out how business owners can thrive in the new retail ecosystem especially with an SBA 504 loan.

3) Green Office Properties & the SBA 504 Loan

When you acquire a green office property you can help protect the natural environment, have a healthier workplace, and take advantage of the special SBA 504 Green loan program, when the office property you are purchasing meets certain environmental standards.

Find out advantage of SBA 504 financing for office properties here.

Man in suit with graph showing loan interest rates

4) Loan Interest Rates for Dummies (and the Rest of Us)

We spend a lot of time talking about interest rates because they affect so much of our lives. On a personal level, they govern the cost of our mortgage, our credit card bill and our car payment. In business, they affect our ability to grow and expand, to invest in new equipment, and to purchase commercial real estate.

But how well do we really understand interest rates? Where do they come from? What do they mean, and how can we make smart financial decisions based on our expectations for future interest rates?

Click here to find out more about interest rates.

5) Characteristics of an Industrial Real Estate Hot Spot

Over the past few years there has been a revitalization of the industrial sector, driven primarily by e-commerce retailers looking for warehouse space that meets their specific needs.

On paper, that looks like decreased industrial vacancy and increased rents. What really makes an industrial hot spot in different regions?

Click here to see what makes an industrial hot spot.

6) The Interim Second – a Critical Element of Every SBA 504 Loan

If you’re familiar with SBA 504 loans, you’re likely at least familiar with the term “interim second.” But there’s also a good chance that you may not fully understand what an interim second is, and how critical it is to SBA 504 financing.

Click here to learn more about Interim Seconds for SBA 504 loans.

Flexible open office space

7) What a 25-Year Term on SBA 504 Loans Means for Business Owners

Last year, the SBA made the first major change to its 504 loan program in over 30 years: It added a 25-year term. Now, businesses owners applying for a SBA 504 loan can choose from a 10-, 20- or 25-year debenture. What’s different about a 25-Year SBA 504 loan?

Click here to find out.

8) Scale the Multifamily Mountain with a Bridge Loan

When your multifamily property deal needs to close before your agency loan is approved. When this happens, having a strong bridge lender on speed dial can make a commercial mortgage broker look like a hero to their client.

Find out more about bridge lending for multifamily here.

9) Spotlight on Self-Storage: What’s all the Buzz About?

This asset class may not exude the glamour of a shiny downtown office tower, but self-storage assets have for a long time been the unsung heroes of commercial real estate investments. People are talking more and more about self-storage.

Read why here.

10) Hotel Financing With the SBA 504 Loan Program

The US hotel industry saw another record year in 2018, reaching absolute values that were the highest ever benchmarked. A 10th consecutive year of growth is predicted for 2019, according to CBRE Hotels Americas Research. As experienced lenders, we are convinced that the best, most cost-effective solution is to finance your hotel is with an SBA 504 loan.

In this article, we will walk you through today’s peak hotel market, as well as recent changes that affect SBA 504 loans.

Get Your Deal Quoted!


News Roundup: What is the Latest Asset Class Affected by E-commerce?

Changed Focus for Late-Cycle CRE Investing

City skyscrapers graphic with arrows and 2019

As a global economic downturn begins to take shape, late-cycle commercial real estate investors are focusing on industrial and multifamily as the asset classes that will best weather any coming storms—unlike the office and retail boom that preceded the 2008 crash. The Federal Reserve’s stricter controls on construction loans have effectively prevented overdevelopment, say industry observers, giving rise to predictions that the approaching downturn will be relatively gentle.

Self-Storage Spotlight

Don’t miss the just-published Self-Storage Spotlight, a comprehensive report by Liberty SBF market analysts that surveys every aspect of the “recession-proof” self-storage market and its current, extended growth cycle.

E-Commerce Packages Overflowing Lockers

E-commerce is growing by 20% every year. Multifamily owners have installed digital storage lockers to help handle the heaps of e-commerce packages that don’t make it to tenant doorsteps. Space is limited, lockers are fast becoming overloaded, and adding more lockers is costly and non-scalable as volume increases. One solution is Fetch, a smart new offsite service company that offers multifamily operators unlimited storage for everything from meal kits to mattresses, and allows tenants to schedule deliveries at their convenience.

Liberty SBF Provides $1.6M for Warehouse Acquisition

Liberty SBF successfully closed a $1.6 million SBA 504 loan, in partnership with Florida Business Development Corporation, for an appliance supply company’s acquisition of a warehouse property near Orlando, FL. Despite a delay due to last month’s government shutdown, the transaction closed within a very tight timeframe. Liberty SBF provided 90% LTV financing with both a first and interim second lien loan, allowing the business owner to preserve cash for working capital.

An Overview of the Self-Storage Market

Self storage building exterior with red doors

For a quick, clear overview of the robust national self-storage industry, see the market-by-market slideshow by nreionline.com that ranks 36 US MSAs by population and employment growth statistics, vacancy rates, and completed facilities. The #1 growth market? Las Vegas.

How Can We Help You?

Liberty SBF offers quick closings for SBA 504 and conventional loans. We’d love to help you.

Let’s Talk. 


Liberty SBF Closes Memphis, TN Multifamily Bridge Loan For Local Sponsor

Tennessee multifamily

Liberty SBF funded this multifamily loan in time sensitive deal. Bridge loan allowed the sponsor time to season property up to 90% occupancy as required by perm agency loan with no prepayment penalty.

Liberty SBF recently closed a $1.7MM bridge loan for the acquisition of a 58-unit multifamily property in Memphis, Tennessee. Liberty SBF’s bridge loan will allow the sponsor to acquire the property and season the location at 90%+ occupancy for 90 days before exiting into permanent agency financing.

The property underwent a $1.38MM renovation in 2017 by the seller to improve the building allowing the sponsor to purchase the property in turn-key condition. The management company is located in downtown Memphis with 10-years experience managing multifamily properties in the city. At acquisition the property was 84.5% occupied. The sponsor and management company both have extensive experience in the Memphis multifamily market.

The low-rise multifamily property was built in 1972, located in a primarily residential area at 2879 Beverly Hills Rd, nine miles northeast of downtown Memphis, and is currently running at market level. The property is located near various living amenities that will continue to support the asset in both performance and value.

Read Liberty’s White Paper on Bridge-to-Agency Loans for Multifamily Sponsors, Mortgage Bankers, & Agency Lenders: Click Here.

Liberty SBF offers personal service for SBA 504 and Conventional & Bridge loans for owner-user properties across the US. We’d love to help you.