So how expensive are bridge loans, anyway?
Hey gang,

My mother inherited a commercial real estate property when my father passed away, and we've got a CRE broker who is listing it presently.  Unfortunately our loan on this property comes due in two months, so it's probable that we'll need a bridge loan to cover the interval of time between the loan coming due, and closing the sale.  

The current loan comes due on March 1, and our broker thinks worst case scenario we can close on June 1, so the duration of the bridge loan would be 3 months max.  The principal of the loan would be around $3.5m.  My mother has stellar credit, the property is a Class A building with a long-time medical clinic for a tenant, and we've recently renewed their lease.

I'd like to ballpark how much we might expect to pay in fees and so forth for such a bridge loan.  In searching online, I haven't found any anecdotal examples of bridge loans above and beyond residential real estate, so I'm not really sure what we're dealing with here.  If someone can kindly offer some input, I'd certainly appreciate it!
[{"id": "dbtqq2q", "text": "first of all, before looking to do a bridge loan, talk to your present lender about extending the current loan by 3-6 months. This would probably be your best bet.\n\ni am sure someone will loan against the property - but most bridge loans will have a pre-pay lock out for a year minimum (think about it they want to put out money at say L+500, not L+500/12*3)\n\nbut to answer your question and leaving aside pre-pay lock out. Bridge loans can be anywhere from L+250 to L+700, plus 1% in and 1% out (Usually) plus cost.\n\nyou may really need a hard money loan - if you can't extend with current lender. And \"Hard\" is the operative word.\n", "replies": [{"id": "dbu0r4e", "text": "Agreed - most bridge lenders will want to have you locked out for 12-18 months depending on the lender. You could structure the loan be assumable by the buyer, but that is not ideal.\n\nDefinitely ask for an extension - this will be the cheaper option.\n\nMy shop typically prices L+500 to 650, depending on the asset. Sometimes we dip below 500 if it is decent multifamily ", "replies": [{"id": "dbu9qii", "text": "Thanks, yes -- extension has been asked for!", "replies": [], "depth": 3}], "depth": 2}, {"id": "dbu9pwz", "text": "The note holder is a private life insurance company, and indicated they would consider a 90-day extension on the loan only after we submit a purchase agreement showing closing / diligence period beyond maturity date.  It makes sense, and that would of course be ideal, though I wonder what kind of fees they would charge, above and beyond the interest rate, in this scenario.  This is what I consider best case scenario, but with $3.5m on the line, we have to consider the other scenarios as well.\n\nThanks for the information on bridge loan rates.  I'm afraid, even after some googling, that I do not understand what \"L+*n*\" means.  My exposure to commercial real estate for the last year has been grasping at straws to figure out how to sell off my father's properties; I am not formally trained in this field.  Nonetheless, I did some research on the cost of bridge and hard money loans and it looks very expensive, one article citing around 18%.\n\nAssuming the scenario where the lender decides not to extend the loan a few months, another avenue is what happens in the event we enter into a maturity default either before or during a purchase agreement.  I haven't scrutinized the fine print of the loan.  My gut feeling is that this jeopardizes the sale -- i.e., will scare off the buyer (who would most likely be an institutional investor rather than a private investor).  However, as I understand it, a maturity default on this property isn't a real problem, it's a finance problem:  the real property is still a stellar value, regardless of our inability to maintain our financing.  Perhaps it would be the case that there is an unspoken grace period that can buy us critical time to close.  We have retained a CRE attorney who might help us tread these foreboding waters, should we need to.", "replies": [{"id": "dbuqk8p", "text": "if your loan is with a life insurance company - this is great - they are usually easy to work with. I frankly don't think there are any other scenario that would make sense if they are willing to extend. And there ask is very reasonable. To answer your question - what kind of fees do they charge - an extension fee is usually 25bps to 100bps (.25% to 1%) of the principal amount. but maybe they ask for nothing.\n18% is CRAZY! seriously !!! Mezz right now is pricing in the 12% to 15% range\na maturity default in this situation isn't ideal (and personally I seriously seriously doubt the insurance company wants that either - so don't think you have no leverage with the LIFECO)\n\nI could go on and on. but it sounds like you have a RE Lawyer he can help you navigate the waters. Good Luck!", "replies": [], "depth": 3}, {"id": "dby3842", "text": "&gt; \"L+n\" means\n\nLIBOR rate + 500 basis points (5%)", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "dbuab8u", "text": "L + N is 1 month LIBOR plus the spread in basis points.\n\nIf someone is quoting you 18% that is a hard money lender... my Mezz guy doesn't even charge that much ", "replies": [], "depth": 1}, {"id": "dbwoc59", "text": "I agree with the previous commenters and sounds like you have that discussion going with your Life Co to extend your current loan. However, if it doesn't work out to get that extension or your current buyer falls through and you do end up needing quotes for a bridge loan, DM or email me at Tim@StackSource.com. StackSource is a new online platform almost out of beta that helps you get real quotes from multiple lenders, and we have plenty of bridge lenders on the platform. It may be prudent to get a few term sheets so you're fully informed and have a plan B.", "replies": [{"id": "dby9c1b", "text": "Thanks, I'll check it out.", "replies": [], "depth": 2}], "depth": 1}, {"id": "dbzisp1", "text": "Try going to more rural banks near major cities. A lot of them are flush with cash and hungry for loans right now, and if they can't make the whole loan, will partner with other similar banks. Offer to pay a slightly higher rate to compensate them for the headache if need be. \n\nIf I was a lender and someone came in offering to pay 8% on a first position loan with lower DTV for 3 months + fees, I am going to lobby my loan committee pretty hard.\n\n", "replies": [], "depth": 1}, {"id": "dbzyjao", "text": "I'm an underwriter for a bridge lender and I'm happy to answer any questions for you. I agree with extending your current loan as a first option. Most, if not all, bridge lenders require a minimum interest period of anywhere between 12-18 months. Pricing is a spread over LIBOR so for class A with a long lease you're probably looking at 450-500 over LIBOR. The bridge space is pretty competitive these days. Again, happy to answer any more questions you have!", "replies": [{"id": "dc178zb", "text": "Ok thanks, I have a question regarding timing and logistics of applying for, and then finally getting funding from, a bridge loan.\n\nI assume the application process is the normal sending in tons of financial statements and waiting for approval and final schedule of fees &amp; loan interest rate and so forth.  And then the customer in need of the loan, at some point, pulls the trigger and says YES by signing and submitting paperwork.  And then some time after that, a funding event happens where the funds are transferred to the intended destination.\n\nLet's say March 1 2017 is when an old mortgage comes due and therefore is the date of the funding event.  Working backwards from this, how long does a normal approval process take?  In other words, when should one needing funding on March 1 submit a loan application to a lender one has previously identified as desirable?\n\nAnd then, after being approved and establishing fees etc, how close to the actual funding event can one wait, before committing to taking on the loan?  Or put another way, how long can we pussyfoot around with the note holder being indecisive about extending the maturity date past March 1, before we give up and pull the trigger on a bridge loan?", "replies": [{"id": "dc1otbf", "text": "Most lenders will commit to funding within 30 days - but that's 30 days from signing of a term sheet (which is non-binding). Here in our office, it takes about 2 weeks of negotiating for the originators, once it gets signed up - it moves to closing which typically takes 30 days. Can take less if it's rather straightforward (single-tenant with a long lease in a decent sized market.)\n\nWith these things though - the sooner the better. Right now we are looking at a few new properties who have loans maturing mid-2017.", "replies": [], "depth": 3}, {"id": "dc1ovuw", "text": "You should probably be working in tandem. Contact a few bridge lenders now while you wait to hear from the bank. Just obviously don't send any deposits it - as part of them will be non-refundable.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}]