Finance Column: The Non-Bankable Bridge Loan

By Bradley Ross, Vice President, Calmwater Capital

While traditional lending sources such as banks, life insurance companies and even CMBS platforms continue to loosen lending guidelines as the Great Recession fades further from our memories, many real estate finance opportunities remain outside the scope and capabilities of more traditional lending sources.

Take, for example, the following situations:

• With the closing date of your new deal quickly approaching, you find yourself in lender “credit committee purgatory” that can’t execute or deliver what was promised;
• Your existing loan is maturing but your tenant-in-tow hasn’t quite signed the lease; or
• You could qualify for that cheap loan, except for that one little thing!

If this is you, then there are a number of bridge lenders that would like to buy you lunch. Their capital is ready to deploy to close on the opportunity, initiate the business plan and position the borrower to reap the rewards. From billion-dollar money managers to local entrepreneurs, bridge loan borrowers value certainty of execution, flexibility and creativity above the promise of the lowest rate. These borrowers oftentimes prefer a bridge debt structure to an equity raise, as they can enjoy the non-diluted upside they helped to create.

Due to growing demand, capital providers ranging from family offices to institutional debt funds are entering the market. According to CBRE’s Lender Forum Report of March 2015, nearly 20 percent of commercial property lending in 2014 came from sources outside of banks, life insurance companies and CMBS. While this may be counterintuitive given that we are five or so years removed from the best value-add environment of our generation, sponsors are borrowing at a rapid pace to complete rehabs, conversions, quick-close acquisitions and stabilizations across the country. With increasing banking regulations already underway, this gravitation toward bank alternatives is likely to continue.

Asset-based bridge lenders are often able to overcome real estate challenges where others fall short. In one recent closing, Calmwater Capital financed a 200,000-square-foot Class B office property in Colorado with substantial tenant rollover risk. Given the positive metrics in the market and a protected basis in the real estate, our firm was able to close a highly structured $20-plus million financing to acquire and stabilize the property. In a recent California deal, Calmwater provided a highly structured and flexible loan for the acquisition, construction and lease-up of a new condominium project, closing the loan in 30 days. While the loan-to-cost ratio was above banking capabilities, our well-protected cost basis allowed our firm to execute.

While not every deal is a fit for a non-bank bridge loan, it is an important and active segment of the real estate finance market that helps borrowers who value certainty of execution unlock the true value of their projects.