Commercial Loans Blog

Commercial Loans and One-Point Bridge Loans

Posted by George Blackburne on Mon, Mar 30, 2015

bridgeloansI'm sure that you already know a great deal about commercial bridge loans, but I hope to add even more to that knowledge today.  If you are a commercial broker - a commercial real estate broker or salesman - today's training article will be particularly helpful.  By the way, it is the custom and practice in the industry to call commercial real estate salesmen "commercial brokers", even if these salesmen are not technically licensed as real estate brokers.

A bridge loan is a fast commercial real estate loan used to bridge a short period in time.  Years ago bridge loans were also known as swing loans, although this term has fallen out of common usage.  Typically bridge loans have a term of just 6 months or one year, but many bridge loans also provide for a 6-month or a one-year extension upon the payment of an additional 1/2 point to 2-point extension fee.

 

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Bridge loans are used to bridge some short period of time.  Here are some examples:

  1. Suppose a commercial property investor has listed his office building for sale, but the building hasn't sold yet.  In the meantime, the investor suddenly needs dough, perhaps to inject cash into his business.  A fast bridge loan solves his problem.

  2. One of the unfortunate features about conventional commercial real estate loans is that they have balloon payments.  A conventional commercial real estate loan is a loan that is NOT guaranteed by the Federal government (SBA loans, USDA B&I loans, and FHA/HUD apartment loans are all guaranteed by the Federal government) or that is NOT guaranteed by a government sponsored entity (GSE's include Fannie Mae, Freddie Mac, and Ginnie Mac).  Since most conventional commercial real estate loans have balloon payments, what often happens right before the property is due to be refinanced?  Too often an important tenant moves out of the building!  Suddenly the property won't qualify for a bank refinance.  A bridge loan pays off the ballooning loan and gives the property owner six months to one year to find a new tenant.

  3. Suppose a commercial property is well located, but it needs to be renovated, beautified, and re-leased at a higher rental rate.  The commercial property owner doesn't want to place a new fixed-rate permanent loan on the property yet because currently the rents are low.  For example, based on current rents, the property might only carry a $900,000 new permanent loan.  However, if the owner renovates the property and makes it look more modern and pretty, he might be able to rent it out for a much higher rental rate and qualify for a $1.5 million new permanent loan.  Who remembers the definition of a permanent loan?  A permanent loan is a first mortgage loan, with a term of at least five years, and which has some amortization (usually based on a 25-year schedule).

  4. Bridge loans are often used to cover the cost of tenant improvements - those special improvements to the space required by a new tenant, like dividing walls, new paint, new carpet, bathrooms, etc.  Once again, the owner can't put a new permanent loan on the property yet because the space isn't yet occupied and because most new fixed-rate permanent loans today have a very painful prepayment penalty.

UFC

 

Bridge loans are designed are designed to bridge a gap in time but NOT a gap in the capital stack.  A lot of new commercial loan brokers mistakingly believe that if their client is trying to buy a commercial building for $1 million, the bank is only willing to make a $700,000 new permanent loan, and the buyer has just $150,000 (15% of the purchase price) to put down, that they need a bridge loan to bridge the $150,000 shortfall (15% of the purchase price).  No-no-no.  A bridge loan does NOT bridge a gap in the capital stack.  In most cases, only additional equity will bridge that gap.  Think of equity as the lender's protective cushion.  Someone else gets to lose a ton of dough (the entire downpayment) before the bank loses its first penny.

But this brings up an interesting question.  Is it possible to obtain a second mortgage bridge loan?  In the old days, there were lots of hard money lenders making second mortgages on commercial properties.  Most of these guys were wiped out in the commercial real estate massacre of 1986 to 1991, when commercial real estate fell by 45%.  The commercial second mortgage industry never really came back after that.  Most commercial bridge loans these days are therefore first mortgages.

Blackburne & Sons has a superb commercial bridge loan program.  We charge only one point, and our bridge loans have no prepayment penalty.  I am aware of no other private money bridge lender in the entire country who charges just one point.

 

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So you're a guy, you're single, and Jennifer Anniston walks up to you and says, "I'm feeling lonely tonight.  Want to go get a coffee with me?"  Best offer you'll ever get in your lifetime?  Nope.  The following offer is even better.  Ha-ha!  

 

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I have a buddy, Les Agisim of TCRM Financial, who describes A-quality commercial loan requests as best rate deals.  If you have a best rate commercial deal sitting on your desk, a deal that is far too good for a private money lender like Blackburne & Sons, and this deal needs to get done by a life company, a conduit, or a bank, I urge you to submit it through C-Loans.com.

 

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Don't forget that you can now close business loans - rather than just commercial REAL ESTATE loans - through C-Loans.

 

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Are you wise?  If so, you will submit a copy of every small (less than $2 million) commercial real estate loan that you work on to Blackburne & Sons.  At NO COST, we will issue your borrower a Loan Approval Letter.  Go ahead and also submit your deal to a half-dozen banks in search of a best rate quote.  Banks issue great quotes; but they turn down a ton of great commercial loans for the goofiest of reasons.  If the bank leaves you standing at the altar looking stupid, you will be VERY grateful to be able to fall back on Blackburne & Sons.

 

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The next three years promises to be the most profitable time in the history of commercial real estate finance for commercial loan brokers.  This assumes that you actually know the business.

 

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If you don't lay awake at night dreaming of the day when you will enjoy $40,000 per month in loan servicing income, then you are missing the whole point of being in the mortgage business.  It's the loan servicing income, silly!  Last month Blackburne & Sons closed $4.5 million in loans.  This means that starting next month, we will earn an extra $7,500 per month in passive income for the next five years.  Helloooo?  Anyone catch the word, "extra"?  It's the servicing income, silly!

 

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Topics: bridge loans