Commercial real estate bridge loans provide short-term financing for multi-family property acquisitions, typically closing in 14-30 days compared to 60-90 days for permanent financing. These loans offer 65-75% loan-to-cost ratios with interest rates ranging from SOFR + 4.5% to 11.5%, making them ideal for investors who need to act quickly on time-sensitive deals or properties requiring repositioning before qualifying for agency financing.
Quick Facts: Commercial Bridge Loans for Multi-Family Properties
| Feature | Details |
|---|---|
| Loan Amount Range | $1 million to $100 million |
| Typical Closing Time | 14-30 days |
| Loan-to-Cost (LTC) | 65-75% maximum |
| Interest Rates | SOFR + 4.5-7.0% (strong deals) or 11-12% (higher risk) |
| Loan Term | 12-36 months |
| Payment Structure | Interest-only monthly payments |
| Prepayment Penalties | Usually none |
| Origination Fees | 0.5-2% of loan amount |
| Recourse | Full recourse under $10M, non-recourse options above |
What Makes Bridge Loans Different From Traditional Multi-Family Financing
Bridge loans solve the speed problem that kills deals. Traditional Fannie Mae, Freddie Mac, and CMBS loans deliver lower rates (4.5-6%) but take 60-90 days to close with extensive documentation, property inspections, and committee approvals.
When you find a multi-family property owner willing to sell below market but demanding 30-day close, traditional financing fails. The seller won’t wait 90 days. They’ll take another buyer’s cash offer or accept bridge financing from a competitor.
Bridge loans close in 14-30 days. Lenders focus on property value and exit strategy rather than exhaustive financial documentation. They’ll fund properties with vacancy issues, deferred maintenance, or below-market rents that traditional lenders reject. This speed and flexibility let you secure deals competitors can’t touch.
The Typical Bridge Loan Structure:
You acquire a 50-unit multi-family property for $5 million. The property runs at 70% occupancy with dated units and below-market rents. You plan to invest $500,000 in renovations, increase rents by 20%, and stabilize at 95% occupancy within 18 months.
A bridge lender provides:
- Acquisition loan: $3.75 million (75% LTC on purchase)
- Renovation holdback: $375,000 (75% of rehab costs)
- Total loan: $4.125 million
- Interest rate: SOFR + 6% (currently 10.5% total)
- Monthly interest payment: $36,094
- Term: 24 months with 12-month extension option
After 18 months of renovations and lease-up, the property appraises at $7.5 million with stabilized 95% occupancy. You refinance into permanent Freddie Mac financing at 5.5% for 10 years, paying off the bridge loan penalty-free.
When Bridge Loans Make the Most Sense
Bridge financing excels in specific scenarios where traditional loans either don’t work or move too slowly.
Competitive Acquisition Markets:
Multi-family markets in Sun Belt cities (Phoenix, Austin, Nashville, Tampa) see bidding wars with multiple offers on quality properties. Sellers often require proof of funds and 30-45 day closes. Cash buyers dominate because they close fastest.
Bridge loans let you compete against cash buyers. Providing a bridge lender’s term sheet shows sellers you’ll close on time. Many bridge lenders will extend non-contingent offers, further strengthening your position.
Value-Add Repositioning:
You find a 100-unit property with 50% occupancy, terrible management, and units needing $15,000 each in renovations. Current rent is $800 monthly. After improvements, market rent reaches $1,200 monthly.
No permanent lender will touch this property at 50% occupancy. Fannie Mae and Freddie Mac require minimum 85-90% occupancy for standard loans. Bridge lenders focus on future stabilized value, not current cash flow.
The bridge loan funds acquisition and renovations. You spend 12-18 months improving units and leasing to 93% occupancy. Then you refinance into permanent financing at much better rates based on the stabilized property.
Bridge to Agency Financing:
Many investors use bridge loans knowing they’ll transition to Fannie Mae or Freddie Mac loans after stabilization. This “bridge-to-agency” execution pairs flexible short-term capital with competitive long-term rates.
The strategy works because agency loans offer the lowest rates (current 4.75-5.75%) and longest terms (7-10 years), but demand properties meet strict underwriting criteria. Bridge loans give you time to position properties perfectly for agency refinancing.
Avoiding Maturity Defaults:
Your existing property loan matures in 60 days. The current lender won’t extend, and you can’t arrange permanent replacement financing quickly enough. Bridge loans prevent catastrophic maturity defaults that could force distressed sales.
Bridge lenders will refinance existing debt rapidly, buying you 12-24 months to arrange optimal permanent financing without pressure.
Understanding True Bridge Loan Costs
Bridge loan interest rates appear expensive at 9-12%, but the all-in cost depends on multiple factors beyond the rate.
Interest Rate Components:
Most bridge loans use floating rates indexed to SOFR (Secured Overnight Financing Rate). A typical structure quotes SOFR + 6.00%. With SOFR currently around 4.5%, your total rate equals 10.5%.
This beats fixed-rate bridge loans at 11-12% while letting you benefit if rates decline. However, it exposes you to rate increases. Ask lenders about rate caps limiting your maximum interest rate.
Upfront Fees:
Bridge lenders charge 0.5-2% origination fees on the loan amount. A $5 million bridge loan with 1.5% origination costs $75,000 upfront. Some lenders roll fees into the loan rather than requiring payment at closing.
Additionally, expect standard closing costs: $15,000-40,000 for appraisals, environmental reports, title insurance, legal fees, and recording costs.
True Cost Analysis:
Compare bridge loans to losing deals or accepting worse terms:
Example A (Bridge Loan):
- Property price: $4 million
- Bridge loan: $3 million at 10.5% for 18 months
- Total interest paid: $472,500
- Origination: $45,000 (1.5%)
- Closing costs: $25,000
- Total financing cost: $542,500
Example B (Losing the Deal):
- Pass on property due to 90-day permanent financing timeline
- Property sold to competitor
- Cost: Missed $2 million profit opportunity (after renovation and stabilization)
The $542,500 bridge financing cost enabled a $2 million profit. The 10.5% rate becomes irrelevant when it unlocks seven-figure returns.
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Major Bridge Loan Lenders for Multi-Family Properties
| Lender | Loan Size | Typical Rate | Close Time | Specialty |
|---|---|---|---|---|
| Arbor Realty | $1M-$100M | SOFR + 4.5-6.5% | 21-30 days | Large institutional deals |
| Ready Capital | $3M-$50M | SOFR + 5-7% | 21-30 days | Mid-market properties |
| Lima One | $1M-$15M | 11-12% fixed | 14-21 days | Smaller multi-family |
| Stormfield Capital | $1M-$25M | 11-12% fixed | 14-21 days | Quick closings, less documentation |
| JPMorgan Chase | $5M-$75M | SOFR + 4.5-6% | 30-45 days | Bridge-to-agency programs |
Institutional vs. Private Lenders:
Large institutional lenders (Arbor, Ready Capital, JPMorgan) offer lower rates (SOFR + 4.5-6.5%) with more documentation requirements and slower closing (21-45 days). They fund $5 million+ loans and prefer experienced sponsors with proven track records.
Private direct lenders (Lima One, Stormfield, regional players) charge higher rates (11-12%) but close faster (10-21 days) with less documentation. They’ll fund smaller deals ($1-3 million) and work with less experienced sponsors. Their underwriting focuses more on property value than borrower qualifications.
Choose institutional lenders when you have time and want the lowest rate. Choose private lenders when speed is critical or your experience level limits access to institutional capital.
The Underwriting Process: What Lenders Actually Look At
Bridge lenders evaluate deals differently than permanent lenders. Understanding their priorities helps you present strong applications.
Property Value and Exit Strategy:
The lender’s primary concern is getting repaid. They evaluate two scenarios:
Scenario 1 (Your Plan Works): You stabilize the property and refinance within 24 months as planned.
Scenario 2 (Your Plan Fails): You can’t stabilize the property and default. The lender forecloses and must sell to recover their money.
Bridge lenders want confidence they’ll recover 100% of loan principal plus costs if they foreclose. This means they focus intensely on current “as-is” property value, not just future stabilized value.
A lender might offer 70% LTC on a $5 million purchase if comparable sales support $5 million valuations. If sales support only $4.2 million, expect 60% LTC. They’re protecting against worst-case scenarios.
Sponsor Experience:
Bridge lenders prefer borrowers with 5+ years multi-family experience and proven track records. They want to see you’ve successfully executed similar projects before.
First-time investors face harder scrutiny and may need to partner with experienced co-sponsors. If you’re newer to multi-family investing, consider paying 20-30 basis points higher rates or accepting lower leverage.
Business Plan Feasibility:
Your renovation budget, timeline, and projected rents must be realistic. Lenders will compare your rent projections to actual market comps. Claiming you’ll charge $1,500 monthly rents when comps show $1,300 raises red flags.
Provide detailed renovation budgets (not rough estimates), contractor bids, timelines with contingency buffers, and conservative rent projections backed by comparable data.
Exit Strategy:
How will you repay the bridge loan? Acceptable exit strategies include:
- Refinancing to agency financing (Fannie Mae, Freddie Mac)
- Refinancing to CMBS or life company loans
- Property sale
- Cash from other sources
“We’ll figure it out” isn’t an exit strategy. Detail your specific refinancing approach and provide evidence it’s achievable (recent comps showing similar properties sold at target values, communication with permanent lenders, etc.).
Common Bridge Loan Structures Beyond Simple Acquisition
Bridge lenders offer several specialized structures beyond basic purchase financing.
Forward Funding for Renovations:
Instead of funding all renovation money upfront, lenders release it in draws as work completes. You might receive:
- 100% of acquisition cost at closing
- 50% of renovation budget at closing
- Remaining 50% in monthly draws based on work completion
This protects lenders by tying funding to actual progress. It requires more administration (inspections, draw requests, documentation) but enables higher leverage.
Earn-Out Structures:
Earn-out provisions reward successful execution. You might receive:
- Initial loan: $4 million at 70% LTC
- Additional funding: $500,000 if you reach 90% occupancy within 12 months
- More funding: $500,000 if net operating income (NOI) reaches $X
Earn-outs incentivize performance while giving lenders confidence you’ll execute your business plan.
Bridge-to-Bridge Refinancing:
Sometimes your original bridge loan expires before you’re ready for permanent financing. You’re at 85% occupancy but need 90% for agency loans. Or you need six more months of financial history.
Some lenders offer bridge-to-bridge refinancing, extending your loan 12-24 months. This often costs 50-100 basis points in rate increase plus new origination fees, but prevents forced sales at bad times.
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The Hidden Risks Bridge Borrowers Ignore
Bridge loans carry risks beyond high interest rates that can devastate unprepared investors.
Rising Interest Rate Risk:
Most bridge loans use floating rates. If SOFR increases 1%, your rate jumps from 10.5% to 11.5%. On a $4 million loan, that’s $40,000 additional annual interest.
Since the Federal Reserve cut rates recently, this risk diminished. However, unexpected inflation could force rate increases. Consider interest rate caps (costing 0.25-0.75% upfront) protecting against rate spikes above certain levels.
Construction Budget Overruns:
Your $500,000 renovation budget becomes $700,000 due to unforeseen issues (structural problems, code violations, material cost increases). Bridge lenders funded only $375,000 (75% of budget).
You need an additional $325,000 in equity mid-project. If you can’t raise it, renovations stall, leasing stops, and you can’t stabilize the property to refinance. Default becomes likely.
Always maintain 20-30% contingency reserves beyond what lenders require. Plan for the unexpected.
Lease-Up Takes Longer Than Projected:
You projected 18 months to reach 93% occupancy. At month 18, you’re at 79%. Your bridge loan matures in six months. You need 90% occupancy to qualify for agency refinancing.
Without meeting refinancing requirements, you face extension fees (often 50-100 basis points plus extended interest), sale under duress, or default. Conservative timeline projections with six-month buffers prevent this trap.
Refinancing Market Changes:
You plan to refinance at 5.5%. When your bridge loan matures, rates jumped to 7.5%. The property cash flow no longer supports refinancing debt service.
This happened to thousands of investors in 2022-2023 when rates rose rapidly. Always stress-test refinancing assumptions at rates 1-2 percentage points above current levels.
Comparing Bridge Loans to Alternative Financing
Bridge loans aren’t always the best option. Consider these alternatives:
Hard Money Loans:
Hard money lenders focus purely on property value with less underwriting. They’ll lend to borrowers traditional bridge lenders reject. However, expect 12-14% rates plus 3-4 points upfront fees. Terms rarely exceed 12 months.
Use hard money only when bridge lenders decline you and the deal math still works at 13-14% rates.
Private Equity Partnerships:
Rather than borrowing, partner with private equity firms. They provide 100% of equity in exchange for 50-70% ownership. No interest payments, no maturity risk.
The tradeoff is giving up most profits. If your deal generates $3 million profit, your equity partner takes $1.5-2.1 million. Bridge debt costs $400,000-600,000 in interest, leaving you $2.4-2.6 million.
Equity partnerships make sense when you lack sufficient capital or experience to secure debt financing.
Seller Financing:
Negotiate seller financing for part of the purchase. The seller acts as lender, accepting $1 million down payment and carrying a $3 million note at 7% interest for 3 years.
This supplements smaller bridge loans or eliminates them entirely. Expect 30-50 basis points better economics than institutional bridge loans.
Tax Deduction Benefits of Bridge Financing
Bridge loan interest is tax-deductible business expense, reducing your effective cost.
Interest Deductibility:
At the 37% marginal tax rate, $472,500 in bridge interest costs only $297,675 after-tax. The government effectively subsidizes 37% of your financing costs.
Real estate investors in 24-37% tax brackets should calculate after-tax interest costs when comparing financing options.
Depreciation Benefits:
Multi-family properties qualify for accelerated depreciation through cost segregation. This generates $200,000-500,000+ in paper losses during renovation years, offsetting other income.
Combined with mortgage interest deductions, real estate provides enormous tax advantages unavailable in stocks or bonds.
How to Maximize Your Bridge Loan Approval Odds
Strong applications get approved faster at better terms. Follow these best practices:
Create Detailed Investment Memos:
Write 10-15 page investment memos covering:
- Executive summary
- Property description and market overview
- Detailed renovation budgets with contractor bids
- Lease-up timelines and rent comps
- Financial projections (conservative, realistic, optimistic scenarios)
- Exit strategy and refinancing analysis
- Sponsor experience and team bios
Thorough documentation shows professionalism and makes underwriting faster.
Build Lender Relationships Before Deals:
Contact 5-10 bridge lenders and introduce yourself before needing financing. Learn their lending criteria, typical terms, and approval processes. When you find a deal, you’ll know exactly which lenders to approach.
Pre-existing relationships dramatically accelerate approvals.
Demonstrate Strong Liquidity:
Bridge lenders want to see you have 6-12 months of interest payments in liquid reserves beyond equity requirements. On a $4 million loan with $36,000 monthly interest, maintain $216,000-432,000 in accessible cash.
This shows you won’t default if minor problems extend timelines.
The Future of Multi-Family Bridge Lending
Several trends are reshaping the bridge loan market:
More Institutional Competition:
Large banks and insurance companies are entering bridge lending, previously dominated by smaller specialty lenders. This competition is reducing rates by 50-100 basis points for quality deals.
Technology-Enabled Underwriting:
Automated property valuations, digital documentation, and streamlined applications are reducing closing times from 30 days to 14-21 days. Some lenders now offer 7-10 day closes for simple deals.
Longer Bridge Terms:
Traditional 12-24 month bridge loans are extending to 36-48 months, blurring the line between bridge and permanent financing. This gives borrowers more execution flexibility.
Lower Rate Environment:
Recent Federal Reserve rate cuts reduced SOFR from peaks near 5.4% to current 4.5% levels. Bridge rates dropped correspondingly. If rates continue declining, bridge financing becomes more affordable.
How fast can I actually close a commercial bridge loan?
Experienced bridge lenders can close simple deals in 10-14 days, with most transactions completing in 21-30 days. The fastest closings happen when you provide complete documentation upfront (property details, financials, rent rolls, inspection reports), have strong credit and experience, and need straightforward acquisition financing. Complex deals requiring environmental reviews, extensive due diligence, or properties with title issues take 30-45 days. Private direct lenders like Stormfield Capital or Lima One close faster (14-21 days) than institutional lenders like Arbor or JPMorgan (21-45 days) because they have streamlined underwriting processes, though they charge higher rates (11-12% vs. SOFR + 4.5-6.5%). To accelerate closing, work with lenders you’ve built relationships with beforehand.
What loan-to-cost ratio can I get on a value-add multi-family property?
Bridge lenders typically provide 65-75% loan-to-cost (LTC) on multi-family acquisitions and renovations. However, your actual leverage depends on the property’s as-is value, not just purchase price. If you’re buying a distressed property for $5 million but comparable sales show similar properties worth only $4.2 million as-is, lenders will base their loan on the lower $4.2 million value, giving you perhaps $2.9 million (70% of $4.2M, not 70% of $5M). Properties with strong existing cash flow command higher leverage (70-75% LTC). Properties with significant vacancy or needing extensive renovations get 60-65% LTC. Experienced sponsors with proven track records can push toward the higher end. First-time borrowers or those with limited multi-family experience should expect 60-65% LTC maximum.
Do I need to make monthly principal payments on bridge loans?
No, nearly all bridge loans are interest-only. You make monthly interest payments only, with the full principal balance due at maturity (typically 12-36 months). For example, a $4 million bridge loan at 10.5% requires $35,000 monthly interest payments but no principal reduction. This structure keeps monthly payments manageable during renovation and lease-up periods when properties generate little or negative cash flow. The full $4 million principal gets repaid when you refinance into permanent financing or sell the property. Some lenders offer extension options (typically 6-12 months) if you need additional time to execute your business plan, though extensions cost 50-100 basis points in rate increases plus extension fees equal to 0.5-1% of the loan amount.
Can I get a non-recourse bridge loan or are they all full recourse?
Bridge loans under $10 million are typically full recourse, meaning you personally guarantee the debt. If the property forecloses and the lender loses money, they can pursue your personal assets (bank accounts, other real estate, investments). Bridge loans above $10 million at leverage below 65% often qualify for non-recourse structures, where lenders can only foreclose on the specific property, not your personal assets. However, non-recourse loans include “bad boy carves” where you become personally liable for fraud, environmental violations, or gross negligence. Rates on non-recourse loans run 25-50 basis points higher than recourse loans. Some lenders offer hybrid structures: recourse during renovation/lease-up, converting to non-recourse once the property stabilizes and hits target occupancy and debt service coverage ratios. If personal guarantee exposure concerns you, consider bringing equity partners to share recourse obligations.
What happens if I can’t refinance my bridge loan when it matures?
You have several options, none perfect but all better than default. First, request an extension from your current lender. Most offer 6-12 month extensions for additional fees (0.5-1% of loan amount) plus 50-100 basis points higher interest rates. Second, seek bridge-to-bridge refinancing from a different lender who will pay off your maturing loan and give you another 12-24 months. This costs 1-2 points in origination fees plus ongoing interest at prevailing rates. Third, sell the property even if not fully stabilized. You’ll capture partial value-add gains instead of full projected returns. Fourth, bring in equity partners who purchase 30-50% ownership in exchange for cash to pay down debt, reducing your loan-to-value ratio and making refinancing achievable. Never simply let bridge loans mature without a plan because lenders will quickly begin foreclosure proceedings, typically starting within 30-60 days of default.
