A Bridge to Success
Interim loans can span the multifamily lending gap.
a strengthening multifamily market, bridge financing can be an attractive
option for investors seeking to acquire or reposition multifamily properties
with low occupancy numbers, planned renovations, or other operational
demand in today’s market has created a scarcity of stabilized properties with
attractive yields. In response, owners and investors are seeking more
transactional flexibility and higher yields on properties that do not meet the
criteria for permanent loans. For example, in hard-hit multifamily markets such
as the southeastern U.S. and California’s Inland Empire, which are
strengthening after hitting bottom, investment in transitional properties that
need updating is heating up.
or underperforming properties — where the occupancy level is below the minimum
required by Fannie Mae, Freddie Mac, and Department of Housing and Urban
Development loans or income is depressed due to operational and market
challenges such as concessions or outdated units — have an urgent need for
financing so investors can enhance occupancy, perform needed improvements, or
engage better management to make the property competitive and ultimately
increase the bottom line.
despite Reis data showing a drop of nearly 32 percent in the multifamily
vacancy rate between fiscal year 2010 and FY 2012 (from 6.6 percent to 4.5
percent), loans for underperforming multifamily properties remain hard to
obtain from traditional lending sources, which are still focused on stabilized
loan can provide multifamily borrowers with time to work through the issues
that may prevent a property from obtaining a permanent loan today. Interim
financing also gives new buyers of underperforming properties the capital they
need to make renovations and other improvements, allowing the borrower to
increase the property’s income and resulting value over the bridge loan’s term.
loans usually offer 12- to 24-month terms that provide borrowers additional
time to implement their value enhancement strategies. Another advantage of
bridge financing is it can be nonrecourse, which means that, except in certain
circumstances, the lender has no claim against the borrower’s assets other than
the property in the event of a default.
experience is a primary qualification consideration: Bridge loans are not for
novice real estate investors. The best candidates are well-capitalized,
reputable borrowers who have prior experience and an existing presence as
owners of multifamily properties in the target market.
properties are typically located in stable or improving markets that have a
solid and growing employment base. Attractive properties are found not only in
big-city urban locations but also in stable and growing suburbs of major
metropolitan areas, as well as in certain secondary markets. The key is the
demographics of each market and how they relate to the property and its story.
though a bridge property does not currently qualify for permanent financing, it
should have a clear exit strategy through a refinancing with Fannie Mae,
Freddie Mac, or HUD upon stabilization. In addition, properties that meet the
following criteria will have an easier time qualifying for a bridge loan:
units or larger;
• less than 25 years old; and
in a strong market.
should a borrower expect when it comes to loan rates and terms? For example, in
Walker & Dunlop’s Interim Loan Program, target loan amounts are in the $5
million to $35 million range with larger loans considered on a case-by-case
basis. Loan term is up to two years, and the interest rate is a floating rate
over the 30-day Libor index. Maximum loan to value is the lesser of 80 percent
“as-is” value or 75 percent loan to appraised value upon stabilization. Maximum
loan to cost is 90 percent including costs associated with renovation.
Columbiana Ridge Apartments in Columbia, S.C. — a 100 percent Section 8
affordable housing property — was scheduled to receive a HUD loan to finance
significant renovations and help modernize the community. However, preparing
and placing the bonds associated with the financing took more time than
anticipated. This produced a scenario where the borrower had two weeks left to
close on the acquisition, but knew the bonds could not be ready in time. A
90-day bridge loan allowed the borrower to perform under the terms of its
purchase contract prior to the closing of the placement of the bonds and the
looking for a bridge loan, investors should find an expert in this specialized
financing arena. The best bet is a capital source with an established track
record as a lender for Fannie Mae, Freddie Mac, and HUD programs, and the
ability to make bridge loans by leveraging its own balance sheet. In addition
to experience and an established track record, sources for interim financing
should be able to offer unique loan products tailored to borrowers’ specific
it comes to property acquisition or repositioning in today’s improving
multifamily market, interim financing can be the bridge to investment
opportunity for multifamily investors who want their projects to move forward
now rather than later.
Goodman is executive vice president ofWalker & Dunlop, a national
commercial real estate finance company, with a primary focus on multifamily
lending. Contact him at email@example.com.