April 16, 2006

Exit Strategies for Commercial Real Estate Loans

Bridge Loan Lenders Want to Know How They Are Going to Paid Off

If you are going to sell a bridge loan lender on making you a bridge loan, you better be able to point to a viable exit strategy.

You will recall that a bridge loan is a short term loan on a piece of land or on an income-producing property. The good news about bridge loans is that you can often secure a multi-million dollar bridge loan is less than a month, which is blinding speed for a commercial real estate loan. The bad news is that bridge loans come from hard money commercial real estate lenders, and they are typically very expensive. Many bridge loans are written at 11% to 15% interest and two to five points for just a one-year loan. Ouch!

One of the first questions that a bridge loan lender will ask you is, "How are you going to pay me off? What is your exit strategy?" After all, bridge loan lenders make their money on the churn. They make two to five points every time they make a new loan, so they want their money back so they can earn more fees.

Your exit strategy may come from a number of different angles. The property might be for sale. Or you might just need the dough to fix up the building so you can rent it. When the property is renovated, you can easily obtain permanent financing.

The guy who lacks a viable exit strategy is the guy who bought a piece of land for $500,000 five years ago that is now worth $1.8 million because the city expanded to his gates. He then goes to a bridge loan lender and seeks a $900,000 bridge loan to pay other obligations. This guy might get turned down because he has no viable exit strategy - although most bridge loan lenders are so flush with cash today that he might still find financing.

You can apply to over 300 bridge loan lenders in just four minutes using C-Loans.