The bridge loan market is starting to heat up as lenders grow more comfortable with financing transitional assets.
Both Wells Fargo and Prudential Mortgage Capital Co. re-opened their bridge loan programs in the second quarter of 2010, tying them to their agency permanent loan platforms. Ladder Capital has also been an active bridge lender this year. Additionally, Greystone will soon announce a new bridge loan program, and there are rumblings in the mortgage industry that Berkadia is thinking of doing the same.
For large agency lenders such as Wells and Prudential, these bridge loans often act as a feeder for Fannie Mae, Freddie Mac, and FHA permanent loans. The programs typically target properties that need a little extra seasoning before they can meet the agency loan requirements, minimum qualities such as 90 percent occupancy for 90 days.
But there’s also a segment of the industry that goes beyond that comfort zone, targeting third-party note purchases, substantial rehabilitations, and owners looking to buy their own debt at a discount.
CWCapital is currently prepping a bridge loan program for a fourth-quarter rollout. While the lender sees a big opportunity in conventional bridge executions, it will target the product to a broader swath of the market. “We’re not only looking at assets that are nearly ready to go into an agency, but we’re even looking at some heavy duty rehab, non-stabilized property type opportunities,” says Michael Berman, president and CEO of Needham, Mass.-based CWCapital.
BB&T Real Estate Funding has also grown more active this year. Last year, the company lent about $50 million in multifamily bridge loans but has already done about $70 million this year, and hopes to grow to as much as $100 million by next year. The company offers nonrecourse bridge loans with a typical term of two to three years (with extensions for up to five years), currently priced around 5 percent.
And BB&T’s program isn’t limited to properties that need just a little seasoning. “We’ll do some pretty heavy value-add plays,” says Kirk Booher, senior vice president of Chicago-based BB&T Real Estate Funding, a subsidiary of Grandbridge Real Estate Capital. “We’ve done vacant multifamily deals in the last couple of years as well, including a vacant condemned deal in South Florida.”
The company will also lend to owners who have the chance to buy their own debt back at a discount. “As a general rule, we’ll require them to put some new cash in, at a minimum usually 10 percent of the loan amount,” Booher says.
Many bridge lenders, though, aren’t interested in funding a third-party distressed note acquisition. But there are other options. BRT Realty Trust, a publicly traded company that specializes in fast executions, has also grown much more active this year after a tough 2009. The lender can close in two to three weeks and doesn’t require an appraisal. Its bridge loans typically price between 10 percent and 13 percent with two or three points, can go up to 80 percent loan-to-value, and come with a one-year term with an option for another year, with no prepayment fees.
"We’ve done quite a number of deals where we have financed people who are buying third-party notes,” says Mitch Gould, executive vice president of the Great Neck, N.Y.-based BRT. “And we’re seeing a lot of opportunities with people who can pay off their debt at discounts.”
When it comes to structuring a note acquisition loan, BRT takes an interesting approach. The company buys the note itself and names the borrower a special servicer who continues the foreclosure and then buys the note. “It’s a mechanism we came up with to avoid double foreclosure,” Gould says. “If a borrower doesn’t pay us—instead of having to foreclose on him and then finishing the foreclosure on the property—we already own the note.”