We recently wrote about the benefits of bridge loans for transitional properties in which the assets can be 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.
Historically, bridge loans were available for only larger transaction — $10 million and up. Now the program minimum has been reduced to $3 million, allowing small balance transactions to qualify. This coincides with the typical minimum of $3 million required for a long-term, fixed-rate CMBS conduit loan.
“We recently had a situation in which a borrower requested a long-term, fixed-rate CMBS conduit loan secured by a neighborhood retail center in the amount of $4.5 million,” commented Michael D. Sneden, Executive Vice President at ValueXpress. “The center was 100% occupied, but one of the tenants occupying 20% of the space was in bankruptcy and the space had to be underwritten as vacant. Hence, the property cash flow was insufficient to support a $4.5-million CMBS loan. So the solution was a small balance bridge loan for $4.5 million until the space is released, at which time it is projected the cash flow will support a CMBS conduit loan of $4.8 million.”