The Rate Reality
Bridge loans have always thrived in transitional markets — properties in lease-up, value-add repositioning, or sponsors seeking speed over all-in cost. But in a sustained high-rate environment, the calculus changes. Floating-rate bridge debt now carries real carry cost that sponsors must model carefully against their business plan timeline.
Spread Compression vs. Index Pressure
While SOFR spreads have tightened modestly as lender competition returns, the base index itself keeps overall all-in rates elevated. A bridge loan priced at SOFR + 325 bps in today's market may cost 200 bps more than an equivalent deal would have in 2021 — even with tighter spreads.
What Lenders Are Looking For
- Shorter durations: Lenders prefer 18–24 month terms with extension options rather than open-ended 36-month structures.
- Higher sponsorship quality: Track record and liquidity requirements have tightened meaningfully since 2022.
- Debt yield floors: Most bridge lenders now underwrite to a minimum 7–8% debt yield at closing, not just at stabilization.
- Interest reserves: Full-term funded interest reserves are back in vogue for lease-up plays.
Structuring for the Exit
The most important conversation in any bridge loan is the exit. A clearly articulated takeout strategy — whether agency refinance, life company placement, or sale — gives lenders confidence and borrowers flexibility. We work with our clients to stress-test exit scenarios at multiple rate levels before committing to a bridge structure.
Our Perspective
We continue to source competitive bridge execution for the right deals. Asset quality, sponsorship, and a credible business plan remain the three pillars. If your current lender is pulling back or over-pricing risk, we can likely find a better solution.