Commercial bridge loans, also known as herd money bridge loans fill an important need in the commercial real estate market. They represent bridge or gap financing to bridge the gap between non-traditional and traditional. Aka conventional commercial real estate financing. But the number 1 reason most investors and commercial real estate owners seek commercial bridge loans is speed. Allow me to give but a few examples of when the significantly faster origination period of a commercial bridge loan over a conventional commercial real estate loan is crucial.
- Say you’re an investor looking for opportunities in the commercial real estate market and there are quite a few. You discover an apartment complex that the owner for whatever reason has let deteriorate and as a result got behind on his mortgage payments to the bank. As a result, the bank is no longer willing to work with this borrower and has given a foreclosure notice. Despite significant equity, the borrower can’t refinance due to their poor pay history but doesn’t want a foreclosure on their credit history as it would affect all their other properties. In this scenario, you could not only be a “white knight” for the borrower but could also acquire the property well below its market value, particularly the value after some renovations. If you go the traditional commercial real estate loan process, you’ll firstly miss the opportunity as the process will take too long and secondly you probably couldn’t get a conventional multi-family loan as the property isn’t what a lender considers as “stabilized”. The best and probably only solution, unless you have the funds to pay all cash is a commercial hard money bridge loan.
- You discover a motel in a great location with a lot of potential but needs a lot of work. Occupancies are poor due to an older absentee owner no longer watching over the property. The owner needs to sell the property to cover significant medical bills. The problem is the property is not in the condition to get a conventional commercial real estate loan as commercial real estate lenders avoid loans on properties in poor condition like the plague. Enter a commercial bridge lender to get you a loan fast before another buyer comes along so you don’t get into a bidding war.
- Say you are the owner of a strip mall but get into a nasty divorce and it destroys your credit, a reality all too often. The mall’s mortgage is up for renewal and when the bank pulls your credit for the loan’s renewal, it balks on refinancing the property. So now you are facing a foreclosure which will finish off your credit and make it impossible to keep your existing property much less invest or refinance other properties. A short term commercial bridge loan where credit isn’t an important factor is your best route. It’s fast and will help you avoid the foreclosure.
So there you have it, just three examples of why commercial real estate investors seek hard money commercial bridge loans.
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