Apartment Bridge Loans 101
Published August 5, 2013
Do you need a bridge loan—also known as a hard money loan—instead of a conventional apartment loan to purchase or refinance an apartment building?
Conventional permanent loans, the ones with the best long-term fixed rates, require that the property:
1) Be in good condition.
2) Have 90 percent occupancy for a minimum of 3 to 12 months
3) Have 12 to 24 months of good net operating income (gross income minus expenses).
If you don’t meet the three criteria above, you’ll most likely need a more expensive apartment bridge loan in order to refinance or purchase an apartment complex.
Also, if you need financing quickly, bridge loans are a good option because they can close in as little as one week. Conventional apartment loans, like all commercial loans, average 45 to 60 days to closing.
Apartment bridge loans are used to finance apartment buildings that need remodeling or rehabilitation or are not stabilized (meaning they have lower than market occupancy and/or income). Bridge loans typically have a term of one year to eighteen months with interest-only payments. Interest rates average from 10 to 14 percent, with loan-to-value between 60 and 70 percent. Origination points will average from 3 to 6 points.
In most cases there will not be a pre-payment penalty. But some apartment bridge lenders require that the loan be taken out for a minimum of 6 to 12 months, and some put in exit points to cancel the loan early. In many cases a payment reserve (an escrow account from the loan proceeds or your money used to make the loan payments) will be used with the property if income is insufficient to make the payments.
Why are apartment bridge loans so expensive, and why don’t they loan more money? Well, if you think about it, running an apartment building takes the same skills as running any business. The same risks are inherent in making an apartment loan on a complex that is failing and in bad physical shape as in making a loan on a business that is failing and in bad shape. Larger risk equals a more expensive and smaller commercial loan.
Before the recession, apartment bridge loans were made mainly to the property. Today bridge lenders, also known as hard money lenders, take a close look at the borrower as well. Preferred borrowers have some post-closing cash stashed away for a rainy day. Although stellar credit is not required, a credit and background check are often done on the borrower.
Apartment Loan Store offers very favorable apartment bridge loan financing with rates starting at 8 percent. Our apartment bridge loans close in 2 to 4 weeks. Call one of our friendly commercial loan specialists to get a quote on your transaction today: 866-811-9515.
Terry Painter
President, Apartment Loan Store