Financing Focus

A Bridge to Success

Interim loans can span the multifamily lending gap.

In 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 challenges.

High 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.

Nonstabilized 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and Urban Development loans or income is depressed due to operational and market challenges such as concessions or outdated units — have an urgent need for financing so investors can enhance occupancy, perform needed improvements, or engage better management to make the property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.

Yet, 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 properties.

Interim Solutions

A bridge 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.

Bridge 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.


Borrower 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.

Eligible 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.

Even 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:

• 100 units or larger;

• less than 25 years old; and

• well-located in a strong market.

What 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.

Success Story

The 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 HUD closing.

Building Bridges

When 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 needs.

When 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.

Jeffrey M. Goodman is executive vice president ofWalker & Dunlop, a national commercial real estate finance company, with a primary focus on multifamily lending. Contact him at


Knowing the Lease


Understanding who is paying for what can help improve communication between real estate pros and clients.

Read More

Learning from Experience


Opportunity zones have plenty of potential, so here are lessons to be learned from the industry’s experience with EB-5 visas.

Read More

Knowing the Negative


While the intricacies can seem boring and irrelevant at times, understanding the effects of both positive and negative leverage environments on cash-on-cash returns is essential. 

Read More

FHA to the Rescue


While typical FHA loans range between the tens of thousands and hundreds of thousands, many FHA borrowers are also using these programs to finance projects over $100 million.

Read More