One method to increase CMBS conduit loan originations is to provide bridge loans on assets that are eligible for CMBS conduit loans, but are temporarily underperforming. Typical situations are properties that may be in lease-up, perhaps in conjunction with a rehabilitation program that will make the property more appealing to new tenants, or a situation in which the property has lost one or two key tenants, but is well located in a strong market and is likely to re-lease quickly. The borrowers on these transactions would not want to lock in long-term CMBS conduit loan refinancing while the property is sub-performing because the property would qualify for a bigger loan once the property is stabilized and the cash flow is maximized.
However, capital may be required to reach stabilization as often costs are incurred for leasing commissions, tenant improvements and possibly building improvements. Therefore, a bridge loan with a manageable prepayment provision allowing for refinancing into a CMBS loan can be a perfect solution in these situations.
Typical bridge loan terms are 65%-70% loan-to-value and are interest-only based on 30-day LIBOR plus a margin. The margin typically ranges from 500-700 basis points depending on the perceived risk and asset type (hotels usually fall at the higher end of the range). The loan term is 12 months, but can be extended for another 12 months on payment of an extension fee. Bridge loans require the payment of an origination fee of 1%-2% and have an exit fee of 1%-2%. However, as incentive to refinance into a CMBS conduit loan on stabilization, the exit fee is typically waived.
Please contact Mike Sneden (firstname.lastname@example.org) if you have any situation in which a bridge loan would be a suitable solution.