When Are Apartment Bridge Loans Necessary?

Published January 6, 2012 

A number of our clients have wondered when an apartment bridge loan is necessary.

First, it’s important to define what a bridge loan is, for those of you not familiar with bridge loan financing. A bridge loan is a short-term loan that helps you secure financing for a property when the property doesn’t qualify for permanent multifamily financing. The purpose of getting the bridge loan is to have time to improve the property in order that you qualify for permanent apartment financing.

A question may come up of why someone would want to get an apartment bridge loan when there is a high expense in getting a bridge loan. A key point involved in getting this type of apartment loan is that you are purchasing the multi-family property at a very big discount because there is a problem with the property. The property doesn’t qualify for permanent financing, but you can get the property at a great price, and the savings in the property greatly offsets the expense of the bridge loan.

An example of an apartment bridge loan: You find a property that has 60% occupancy, it’s in good shape, and its cash flows. This is quite possibly a very good bridge loan scenario; however it would not qualify for a permanent financing because the occupancy is too low. Permanent apartment financing requires at least 85% if not 90% occupancy.

For the above scenario, the investor might buy a 1.5-year bridge loan to have time to get the occupancy up to at least 85%. Once the occupancy meets the requirement, the investor would get the permanent commercial loan.

Getting an apartment bridge loan as a step in getting a permanent apartment loan can be an effective strategy. However, because it is an advanced multifamily loan investment strategy, it needs to be carefully strategized, and guided by an investor with apartment bridge loan experience.

To discover more about our loan products and rates, See our Loan Programs page.

By Bruce Painter, Marketing Director