Have you ever wondered what average commercial real estate (“CRE”) bridge loan interest rates are or why the rates are what they are? I’ll give you the spoiler: the average interest rate is 6.5%. Just kidding. Actually, the answer is: it depends. Boring, right? But it does depend. It depends on things like risk profile, lender appetite, and interest rate trends. We’ll dig a bit deeper and see if we can provide some helpful information on why lenders do what they do and what to expect in a rate.
Topics: Bridge Loans
Here at RRA Capital, we evaluate CRE bridge loan requests every single day. Over the last decade, several common themes have begun to arise, and we’d like to share the top ten missteps that brokers make when trying to secure a bridge loan on behalf of their client.
1. Sloppy/No Package
Only forwarding an OM (offering memorandum) or historical financials without putting together a package typically looks lazy or desperate. The easier it is to cohesively synthesize the information, the better the response will be from the lender. Lenders are ideally looking for concise descriptions of the business plan, pro forma cash flows along with assumptions, sponsor bio, and sources and uses. A lone faxed copy of Q2-2012 cash flows likely won’t solicit a sharp quote.
Periodically, RRA will provide a brief snapshot of what we are seeing in the commercial real estate market in order to educate our clients and investors. Q3 2018 represents a poignant time in which to kick this initiative off, as interest rates and uncertainty are increasing and interest in alternative investments such as CRE are continually on the rise.
CRE values appear to be peaking but it’s not looking like a bubble as leverage remains conservative and the economy is healthy. The fundamentals are good but few are expecting large further increases in rent and values. Transaction volume is down and it will be interesting to see if there are enough compelling investments out there in order to put the sizable dry powered raised to work. The rising interest rate environment can have both positive and negative effects on CRE and we are watching this closely. Investors looking for additional security along with current income are finding a fit with CRE debt.
Topics: Market Update