Public Commentary: The material below provides an educational overview of commercial real-estate bridge loans. It is not a commitment to lend, arrange, purchase, or invest.
Commercial Real Estate Bridge Loans: A Complete Sponsor’s Guide
A bridge loan buys time—time to complete a renovation, stabilise occupancy, or wait for long-term debt markets to reopen. With maturities of 12 to 36 months and proceeds calibrated to business-plan milestones, these facilities serve as a capital-markets release valve. This guide details core concepts, current pricing, underwriting expectations, and an execution roadmap.
Guide Navigation
1. Definition & Purpose
A commercial real-estate bridge loan is a short-term, floating-rate facility secured by income-producing property and sized to its current—or projected—value. Sponsors deploy bridge debt when cash flow is insufficient, documentation incomplete, or timing too compressed for conventional permanent financing.
- Acquisition: Speed to close without waiting for life-company or CMBS approval.
- Repositioning: Funding cap-ex and lease-up before refinancing.
- Recapitalisation: Interim solution to redeem partners ahead of sale or long-term debt.
- Distress Resolution: Replacing maturing senior debt while pursuing a workout or asset sale.
2. Typical Capital Structure
Sponsors commonly pair senior bridge debt with mezzanine financing or preferred equity, achieving proceeds up to 80 % of total project cost.
| Layer | Advance Rate (LTV) | Target Return / Spread | Payment Form |
|---|---|---|---|
| Senior Bridge Loan | 60 – 70 % | SOFR + 300 – 500 bps | Current interest |
| Mezzanine Debt | Up to 80 % | SOFR + 650 – 900 bps | Current or partial PIK |
| Preferred Equity | Up to 85 % (total) | 10 – 14 % all-in | Accrual or PIK |
3. Pricing & Key Terms (2025 Benchmarks)
| Term | Current Range |
|---|---|
| Tenor | 12 – 36 months + extension options |
| Index | Daily Simple SOFR (30-day look-back) |
| Credit Spread | 300 – 500 bps (core-plus to value-add) |
| Floor | 0.50 – 0.75 % |
| Origination Fee | 1.0 – 1.5 % of principal |
| Exit Fee | 0.5 – 1.0 % (often waived after month 18) |
| Amortisation | Interest-only |
| Prepayment Protection | 3-, 2-, 1-% declining or 12-month lockout |
| Covenants | DSCR minimum, sponsor net-worth & liquidity tests |
Credit spreads narrowed by ~50 bps during Q2 2025 as regional banks re-entered the market, while mezzanine margins remain elevated amid limited inflows.
4. Execution Timeline
- Mandate & Data Room (Week 1): Asset models, rent rolls, environmental, and title.
- Market Sounding (Weeks 2–3): Indicative quotes from specialty lenders and debt funds.
- Term-Sheet Negotiation (Week 4): Proceeds, pricing, covenants, draw mechanics.
- Third-Party Diligence (Weeks 5–6): Appraisal, engineering, insurance review.
- Documentation & Closing (Weeks 7–8): Loan agreement, intercreditor, escrow.
- Funding & Business Plan: Initial advance at closing; subsequent draws tied to milestones.
A well-prepared sponsor can complete the cycle in 30 days; complex ownership structures or environmental issues may extend the timetable.
5. Risk Management & Exit Planning
- Interest-Rate Risk: Hedge with caps or collars sized to peak outstanding balance.
- Execution Risk: Allocate a 5 – 10 % contingency within the cap-ex budget.
- Refinancing Risk: Engage permanent lenders six months before maturity; secure term sheets three months ahead.
- Market Liquidity: Track absorption, cap-rate shifts, and credit spreads quarterly.
6. Market Landscape 2025
Bridge-lending volume reached $142 billion YTD May 2025, up 9 % year-over-year. Industrial assets command the largest share, while suburban office remains subdued. Regional banks are selectively active, yet debt funds continue to handle most loans above $40 million.
Regional Focus: Sun Belt multifamily represents one-third of 2025 originations, buoyed by demographic growth and delayed take-outs amid elevated treasury yields.
7. Frequently Asked Questions
How quickly can a bridge loan close?
Where diligence is complete and the sponsor is prepared, 30 days is feasible. Environmental surprises or fractured ownership can extend timing.
Are SOFR caps mandatory?
Many lenders require a rate cap at closing when leverage exceeds 65 % LTV. Caps are typically sized to the anticipated maximum balance over the initial term.
Can interest accrue to preserve cash flow?
Yes—interest may partially accrue (PIK) or be funded via an interest reserve, subject to leverage constraints.
Next Step
For project-specific guidance—including leverage sizing and indicative pricing—contact FG Capital Advisors to arrange a confidential review.
This guide is provided for informational purposes only and does not constitute advice or an offer to arrange, underwrite, or purchase any financing. Independent professional guidance is recommended before acting on the information herein.
