Understanding Bridge Loans from a Lenders perspective
Hey guys,

Had some questions on bridge loans that I was hoping I could get some clarity/help with:

• When an acquisition fee/developer fee is being accounted for in project costs, are bridge lenders typically basing the ltc based on all projected costs (including those fees) or are they taking out those fees and doing ltc based on what they determine to be eligible/qualified costs? 

• Would COVID related holdbacks work as a reserve or could it be considered a reserve? 

• Are 5 year bridge loans really just structured as a 3 + 1 + 1 or are there bridge loans with actual 5 year terms? I would assume it’s more beneficial for shorter upfront to lower rate cap cost (would rate cap costs be something that could be funded through the loan or is that just being funded through initial equity?)

• PPP for bridge to agency - bridge typically doesn’t have ppp from my understanding (unless you can’t pay off before month 6 otherwise pay x), is the prepayment penalty just a way to make it so that it’s easier for them to say “ok we can waive fee if Refi in-house”? 

With all that said I’ve been having a hard time trying to find books and articles specific to bridge loans from a lenders viewpoint - does anyone have any recommendations?
[{"id": "hv6qisl", "text": "I underwrite bridge loans\n\nCan you please clarify your question? No offense but it is just kind of a tangent and difficult to follow.", "replies": [{"id": "hv6slcb", "text": "Thanks for the feedback, I just wanted clarification on the points I had (please let me know if this is still hard to follow). \n\nThe first one was regarding fees, if I had the following scenario:\n\nTPC = $100\nAcq fee = $2\nDev fee = $7\n\nWould the LTC, assuming requested was 70%, be 70% of the $100 or is it set up so that it is 70% of $91? \n\nThe second, would you classify a COVID holdback as a reserve? \n\nThe last one was say a borrower comes to you asking for 5 year loan (bridge) - are there bridge lenders out there that actually do 5 year loans (no extensions) or would that typically just be a 3 year with extensions.", "replies": [{"id": "hv6wtbf", "text": "Tpc?\n\nYou need to identify sources and uses and provide it. That would be your first step. I.e., understand the the capital (debt &amp; equity) and what its being used for (acquisition,  hard costs, etc).  A developer fee may or may not be an allowable use but it depends on so many factors which simply are not provided in this post.\n\nWhat is a covid holdback? Some kind of interest reserve? What does that have to do with covid?\n\nNeed to shop around and speak with lenders. Different lenders have different cre appetites and terms. I typically deal with 12-24 month bridge loans which are interest only with by-right extensions based upon meeting certain hurdles, i.e., hitting a certain debt yield, occupancy, etc. Once these conditions are met the loans typically commence amortization but it depends upon the market, leverage etc. \n\n5 year IO bridge loans are absurd. Bridge loans are a form of short term financing to ultimately stabilize a property such that it can support amortizing debt service. Not evergreen credit cards. Only long term IO debt I see is typically on high quality NNN properties in competitive markets like NYC. But these are lower leverage and on stabilized real estate, not properties that would require bridge financing.\n\n\nHard to help without more info. It is mildly similar to me asking how long a piece of string is on a yarn subreddit.", "replies": [{"id": "hv7dj2r", "text": "I have COVID reserve show up on my multi family. Basically can be used for any disruptions to operations caused by covid: cover debt service, hire contractors bc your whole maintenance team is sick, etc.\n\nI believe that's what OP is referring to.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hv8yhbt", "text": "\u2022 If the acquisition/developer fee is being financed then it would be included in total cost and LTC. As long as it's a reasonable fee. If it's well above a reasonable fee they may not want to finance all of it.\n\n\u2022 I'm not familiar with covid holdbacks? \n\n\u2022 Bridge loans will typically be structured to have the rate reset annually to an index. A 5-year bridge would be considered a pretty long term and not common. Also will typically not be a 5-yr fixed rate. That would be considered mini perm or perm financing.\n\n\u2022 Bridge loans will typically not have a PPP since it expected to be paid off in a short time frame. The PPP is more for mitigating interest rate risk on the banks balance sheet when fixing loans for long durations.", "replies": [{"id": "hvb9ix2", "text": "And if the fee is not being funded then that would just mean taking out the fee and doing ltc of whatever project cost is after removing?", "replies": [], "depth": 2}], "depth": 1}]