Combining bridge and agency loans

Bridge-to-agency executions are typically used in two situations: 

• Timing: When making acquisitions in a competitive market, the timeline for closing a loan can be tight—sometimes too tight for investors seeking Fannie Mae and Freddie Mac financing. Bridge loans can be executed comparatively quickly so investors can close a deal and seek permanent financing without a deadline. 
  
• Business plan execution: Bridge loans can give multifamily investors acquiring a property time to execute on a business plan, such as rehabbing an asset or implementing operational efficiencies, before locking in long-term agency financing.
  

Commercial bridge loans: Factors to consider

Agency loans have standardized loan 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 loans that are freely prepayable 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. 
• Potential for added 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 can help fund capital improvements.  

Benefits of single-lender bridge to agency

JPMorganChase has developed a streamlined bridge-to-agency program for multifamily investors seeking bridge loans before transitioning to agency loans. 

“When JPMorganChase 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 move fast given our history of underwriting and servicing the loan,” Hofmann said. 

The flexibility to obtain bank and agency financing from a single lender can also be valuable when acquiring portfolios with multiple assets, Hofmann said. 

If some properties in a portfolio are ready for agency financing but others aren’t, the investor may be able to 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 that can offer certainty of execution and coordinate multiple types of capital under one roof,” Hofmann said.