Why would you do a Bridge Loan in an Apartment Syndication?

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Why do a bridge loan?

If we plan on holding it more than two or three years going with an agency loan will set you up with prepayment penalties. By locking in those long terms you get low interest rates but most investors don’t realize the heavy fees.

If the market goes sideways?

If the economy goes bad then the interest rates goes down. Why would we want to hold onto long interest rates (agency loans) if the economy is going to go down and so are the interest rates. And if it is a great market 2-4% rent increases or more a year then you are increasing the NOI like crazy and out of the deal hitting much higher than the proformas anyway. Kinda seems like you can’t lose??? Well if you find a property that is under market rents it sorta is.

Transcription:

Why would you do a bridge loan? You do a bridge loan? Well, most times, what you’re trying to do is you’re trying to do Fannie Mae, Freddie Mac, non recourse debt, which is sort of the long term solution. However, your building needs to be 90% occupied, and a bunch of other metrics have to be made. And sometimes the building, let’s just say 80 85% occupied, which is happened to us pretty recently where it just wasn’t quite there. So in that circumstance, that is when you use a bridge loan, so that the game plan is that you work on that occupancy, maybe a year two, or maybe even as short as six months, and then you refinance it into that long term loan. A lot of the agency loans will have typically have prepayment penalties, which is why if you can increase the value, get that nice little bump as quickly as you can and then get the agency loan. That’s really an ideal situation.

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