Bridge Loan

Bridge Loan: What the Market Actually Requires

Debt funds and mortgage REITs write most institutional bridge paper, sizing to 65 to 80 percent of cost with a future-funding facility for renovation or lease-up capital that draws as the business plan executes. Banks offer bridge at lower leverage and better pricing for strong sponsors but move slower and usually want recourse. The loan is almost always floating rate over SOFR, interest only, structured as an initial term of two or three years plus one or two extension options that the borrower earns by hitting tests, typically a minimum debt yield or DSCR and sometimes an occupancy hurdle.

The underwriting conversation is about the exit, not the coupon. A bridge lender's core question is whether the stabilized NOI supports a takeout: if permanent lenders want a 10 percent debt yield at refinance, the bridge balance must land at or below stabilized NOI divided by 0.10, with cushion. Sponsors get in trouble when they size the bridge to maximum day-one proceeds and leave no room for a softer refinance market, slower rent growth, or an exit cap rate that drifts higher during the hold.

Structural points worth negotiating: the level of extension tests (a test set at stabilized pro forma leaves zero margin), interest reserve sizing, whether future funding is committed or discretionary, prepayment minimums (many bridge lenders require 12 to 18 months of minimum interest or spread maintenance), and exit fees. The difference between a discretionary and a committed renovation facility is the difference between a lender that must fund your business plan and one that may choose not to when market conditions change.

Why It Matters for Your Loan

Bridge debt is what makes value-add investing possible at scale: it funds the purchase and the business plan against income that does not exist yet. The wrong bridge loan, with undersized reserves, discretionary future funding, or extension tests set at perfection, can force a sale mid-plan. Commercial Lending Solutions places bridge loans across debt funds, mortgage REITs, and banks, and stress-tests every quote's exit assumptions against real permanent-market sizing before a sponsor signs a term sheet.