When Bridge Lenders Get It Wrong
December 10, 2024
One and done may be fine if someone is building their long-awaited dream home. But if you’re a commercial real estate developer, that’s the last thing you want. You want to build on your successes, and move from completed projects to new projects without interruption. This typically doesn’t happen alone; bridge financing lenders provide the quick turnaround and flexible short-term financing needed until a project generates income. The thing is, though there are hundreds of bridge lenders, how do you select among them?
In today’s financing landscape, where conventional lenders are slow to lend to commercial real estate sponsors—even if it is for much needed and viable projects like multifamily or workforce housing—private credit is filling the need. Some bridge lenders may promise the moon, then fail to deliver, while others take a more transparent and relationship-based approach. As a commercial real estate developer, here are a few points to consider when selecting a bridge lender.
A lender willing to invest in you—and a long-term relationship. There are plenty of opportunistic lenders who are willing to make a one-time profit off sponsors and have no interest seeing them again. Think about what that means for the developer: it’s starting from scratch with new paperwork and people with every new lender. It can be the same at conventional banks where middle market borrowers can be viewed more like account numbers than people. For the developer, this translates into less attention, added time and effort, and typically significant depository balances versus partnering with a lender where there’s an established relationship.
A lender that’s interested in a long-term relationship will organize the resources to get a deal done. They will bring quality underwriting processes and, importantly, apply the human capital needed to develop a long-term relationship that addresses a developer’s needs.
At Fairbridge, we take pride in our returning client ratio. Over 50% of our borrowers are repeat borrowers. And while not every sponsor we work with will, over the course of time, finance 40 projects, like one long-time client, our borrowers recognize that understanding the property and the people is critical to the lending relationship.
A lender with a track record of closing. There are lots of bridge lenders that entice with what looks like a lower rate, but then, at the last minute, claim there’s a complication—they consider the loan amount too high, the collateral insufficient, the rate an inaccurate reflection of the risk—and change terms. In the meantime, they have the developer’s deposit and get to keep it should the developer decide to change lenders. Along with giving rise to sponsor frustration, it causes delays in obtaining quickly needed capital.
A lender that wants to develop a long-term relationship is one that closes transactions. They conduct their due diligence upfront so that by the time a developer is signing the term sheet, it’s a real and transparent reflection of the lender’s underwriting assessment. What’s more, the lender is willing to share their assumptions and models. Why so much transparency? The lender’s business model is based on having capital and truly deploying it, not simply racking up fees.
Fairbridge has a close ratio that runs over 90%. Our institutional approach means supporting sponsor brand growth by supplying capital when it’s needed and closing deals.
A lender that uses its resources to cross-pollinate. The world, especially the world of commercial real estate, doesn’t exist in a vacuum. In fact, putting entities in a scenario where they can work together can yield exponential results, whether that’s providing an introduction so that developers can join forces on a project or bringing debt participants into the capital stack. A lender that only sees hurdles can miss the bigger picture.
Having principals with decades of experience in real estate and finance, Fairbridge adds value with our vast network and ability to connect people. We think like developers and can envision where larger potential may lie.
A lender that can move quickly. Many bridge lenders have to raise money deal by deal, which takes time. Conventional lenders, especially in these uncertain times, may be reluctant to lend. The quickest lenders are those that are direct lenders: they have discretionary money that they can deploy at any time and can provide money when others may step back. And because direct lenders also don’t have the regulatory hurdles of conventional lenders nor their layers of bureaucracy, private lenders can work with speed and efficiency.
Fairbridge’s evergreen fund enables us to lend at our own discretion. There’s no time wasted going to the market to raise funds, no layers of management approval to wade through, no heavy compliance mandates. As a specialized, asset-based lender that originates, underwrites, and funds short-term loans, we can deliver capital quickly and efficiently.
A lender that can work through problems. Even the best laid plans can have a hiccup. Those who know commercial real estate development know this comes with the territory. Lenders—whether bridge or conventional—without deep market knowledge can panic at the first sign of a project hitting a speed bump and force repayment, or worse, the monetization of a property below its potential value.
A bridge lender with decades of experience in real estate can thoughtfully evaluate next moves, whether its lending into a deal, revisiting terms, or other creative problem solving.
Here again, with principals who have been developers, Fairbridge can be nimble to help ensure the exit from a loan goes as planned. We see the full scope of a project and can be clear-eyed about the levers that can impact the path to income generation.
Work with a bridge lender with a track record of partnership
At Fairbridge, we operate under the values of reliability, transparency, wisdom, and flexibility. We seek to build long-term relationships with commercial real estate developers and sponsors. Our partnerships begin with people: connecting borrowers with decision makers instead of loan officers. We find a way to get deals done, not just once, but consistently, repeatedly, and fairly.
To learn more about Fairbridge’s approach to short-term borrowing and bridge loans, reach out and talk to one of Fairbridge’s principals or visit fairbridgellc.com.
