- A bridge loan is short-term (6–36 months), floating-rate financing used to stabilize or reposition a property before permanent financing.
- Bridge lenders advance 70–80% of total cost, higher leverage than most permanent lenders.
- Pricing runs SOFR + 300–600 bps depending on asset quality and loan complexity.
- Exit strategy is the single most important underwriting factor — have it locked before you close.
- Most bridge loans include interest reserves, so cash flow disruption during rehab is manageable.
A bridge loan is short-term commercial real estate financing designed to "bridge" the gap between a property's current state and its permanent financing event — typically a CMBS, agency, or bank takeout loan. Bridge loans are the tool of choice when a property is transitioning: newly acquired, partially occupied, mid-renovation, or carrying a lease-up story that conventional permanent lenders cannot yet underwrite.
When Does a Bridge Loan Make Sense?
Bridge financing is the right call in four core scenarios. First, value-add acquisitions: you're buying a hotel, multifamily, or office building at below-stabilized occupancy and need time to execute your business plan. Second, PIP and renovation: the property needs capital improvements before it can support a long-term fixed-rate CMBS or SBA loan. Third, rate lock timing: permanent market rates are temporarily elevated and you want time for spreads to compress. Fourth, a maturing loan with insufficient DSCR: the existing debt is coming due but trailing NOI doesn't yet satisfy permanent lender requirements.
How Bridge Loans Are Structured
A typical CRE bridge loan carries a 12- to 24-month initial term with one or two six-month extension options, usually triggered by hitting occupancy or DSCR hurdles. The rate floats over SOFR — in today's market, all-in rates run approximately 7.5% to 10.5% depending on leverage, sponsor quality, and asset class. Most bridge lenders underwrite to 70–80% of total cost (LTC), with the remaining 20–30% from equity.
A key structural feature is the interest reserve. Rather than requiring monthly debt service from the property's cash flow during renovation or lease-up, the lender holds back a funded reserve at closing. That reserve covers 6–18 months of interest payments, protecting the lender from default while the sponsor executes the business plan.
Bridge Loan vs. Permanent Financing: A Comparison
| Feature | Bridge Loan | CMBS / SBA Permanent |
|---|---|---|
| Term | 12–36 months | 7–25 years |
| Rate | Floating (SOFR + spread) | Fixed |
| Max LTV/LTC | 70–80% LTC | 65–75% LTV |
| DSCR requirement | Stabilized projection | Trailing 12-month actual |
| Prepayment | Minimal or none | Defeasance or yield maintenance |
| Recourse | Usually recourse | Non-recourse (CMBS) |
The Exit Strategy: What Bridge Lenders Really Underwrite
Experienced bridge lenders care less about your current cash flow than about your exit. Before approving a bridge loan, a lender will model the takeout scenario: what will this property be worth at stabilization? What CMBS or bank lender will refinance it, at what LTV, and does that loan pay off the bridge? If the math doesn't close with a 10–20% cushion, expect the loan to be declined or repriced.
Common exit paths include CMBS conduit refinance, SBA 504 or 7(a) refinance for owner-operators, agency multifamily refinance (Fannie/Freddie), conventional bank takeout, or sale of the property. The cleaner your exit story, the better your bridge pricing.
Case Study: Hampton Inn Value-Add Refinance, Knoxville TN
A 96-room Hampton Inn purchased at 72% occupancy required $1.8M in PIP work. A 24-month bridge loan at 75% LTC (SOFR + 425 bps, all-in ~8.9%) funded the acquisition and held an 18-month interest reserve. The sponsor executed the PIP over 8 months, stabilized occupancy at 84%, and refinanced into a $9.2M CMBS conduit loan at 6.85% fixed — retiring the bridge in full with $620K in equity returned at closing.
What is the typical interest rate on a commercial real estate bridge loan in 2026?
Most CRE bridge loans in 2026 are priced at SOFR plus 300 to 600 basis points, which translates to all-in rates of roughly 7.5% to 10.5%. Higher leverage, weaker sponsorship, or challenged asset classes push toward the higher end of that range. Some debt funds price wider on distressed or non-stabilized assets.
How is a bridge loan different from a construction loan?
A bridge loan finances a property that already exists and is generating some income, while a construction loan funds ground-up development. Bridge loans close much faster (2–4 weeks vs. 60–90 days) and have simpler draw procedures. Construction loans are underwritten to a completed value and require detailed construction budgets, permits, and monthly draw inspections.
First Realty Capital arranges bridge-to-permanent financing for hotels, multifamily, and other commercial assets across Florida, Texas, Tennessee, Georgia, and the Southeast. Contact us for a bridge loan analysis on your property.
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