When does bridge-to-perm financing make sense for multifamily?

When bridge is appropriate

• •Property has correctable deficiencies: rents >10% under market, occupancy <90%, high expense ratio, deferred maintenance
• •Trailing-12 financials don't support agency DSCR (typically <1.10x on actuals)
• •Sponsor has a credible 12-36 month plan to lift NOI by 15%+
• •Agency is the natural permanent exit for the market

Typical bridge parameters (Apr 2024)

• •Term: 24-36 months plus a 12-month extension (extension fee ~50-100 bps)
• •Max loan-to-cost: 75-80% on acquisition; 85% with mezzanine or pref equity
• •Rate: SOFR + 350-500 bps typical; origination 50-100 bps; exit fee 25-50 bps
• •Interest reserve often required, sized to 6-12 months of debt service

The critical transition question

Before closing a bridge, confirm the property will actually permanent-out at the stabilized projection: test projected stabilized NOI against current agency DSCR minimums (1.25x DUS / 1.20x SBL / 1.176x HUD), apply the current Treasury benchmark plus spread to estimate the permanent rate, verify agency eligibility with a seller, and stress-test a 100 bps rate rise before stabilization.