Combining bridge and agency loans

Common reasons for choosing a bridge-to-agency execution include:

1. Timing: In a competitive acquisition market, the timeline for closing a loan can be tight—sometimes too tight for Fannie Mae or Freddie Mac financing. Bridge loans can be executed comparatively quickly, allowing investors to close a deal and seek permanent financing without the pressure of a deadline. 
2. Business plan execution: Bridge loans give multifamily investors time to execute a business plan—such as rehabbing an asset or implementing operational efficiencies—before locking in long-term agency financing.
3. Aggregating assets: A bridge loan provides temporary financing while an investor packages a portfolio of assets with different closing and lease-up timelines. Once the full portfolio is ready, the investor can transition to a permanent agency financing.
4. Certainty of execution: A bridge loan provides a backstop to prevent a deal from falling through. Sellers often favor buyers who can demonstrate financing certainty—even over higher offers with more conditions. A bridge loan commitment gives investors a fallback if agency financing timing becomes uncertain.
5. Market conditions: Bridge loan interest rates are linked to a floating rate index that tends to move more closely with the federal funds target rate than longer-term rates. When short-term rates are low relative to long-term rates, bridge financing is attractive. A bridge loan also allows investors to wait until market volatility settles before committing to a long-term rate.

Commercial bridge loans: Factors to consider

Agency loans have standardized terms, while bridge loans can be tailored to an investor’s needs. Factors to consider include: 

• Prepayment: Investors typically want to transition from bridge loans to long-term financing as soon as they’re ready. That makes freely prepayable loans attractive.  
• Flexibility: Commercial real estate bridge loans offer fee flexibility. They can be tailored in other ways, too. “Every transaction has levers, and the ability to customize can help investors earn better returns, which can help them win transactions,” Hofmann said. 
• Future capital: Multifamily owners planning to rehab or stabilize an asset may consider bridge loans with earn-out structures that reward added value—or future advances that help fund capital improvements.  

What to look for in a bridge lender

Bridge loans aren’t meant to be permanent, so choosing a lender with experience coordinating multiple types of capital—and offering a seamless transition to long-term financing—is key. J.P. Morgan has developed a streamlined bridge-to-agency program for multifamily investors. 

“We’ve closed bridge loans in under 30 days,” Hofmann said. “When the client is ready to move fast, so are we.”

Working with the same team for both bridge and agency loans helps investors minimize costs and time when transitioning to permanent financing. “When J.P. Morgan originates a bridge loan, there are meaningful efficiencies from a cost and timing perspective when we transition the loan to the agencies. The team is able to streamline the process given our history of underwriting and servicing the loan,” Hofmann said. 

The flexibility to obtain bank and agency financing from a single lender is also valuable when acquiring portfolios with multiple assets. If some properties in a portfolio are ready for agency financing but others aren’t, the investor can make a more competitive offer with a mix of agency and bridge loans. That process is often more efficient when one lender provides both options.

“If you need to move quickly, you want to go to someone who can offer certainty of execution and coordinate multiple types of capital under one roof,” Hofmann said.