Why Bridge Loans Should Be Part of Your Financial Toolkit

Don Pelgrim

While traditional bank and agency loans tend to dominate the senior housing financing discussion, short-term loans, or bridge loans, have become more affordable to all owners, especially in an environment of rising interest rates. It’s a tool every operator should know and should have in their toolkit. and credit limits.

A bridge loan is a unique tool. Think of it like a pipe wrench. You don’t use it every day, but when your faucet is leaking, you need that special tool.

The right tools for the job make a world of difference. Making sure you have a diverse financial toolkit with ready-to-use resources to leverage your strategic business objectives is critical. It may sound counterintuitive, but permanent funding isn’t always the best tool for the job.

What is a bridging loan?

Bridge lending is short-term or interim financing generally used by a borrower until the borrower secures permanent financing or sells the underlying property. Bridge loans use a collateral-based lending approach and place the greatest emphasis and weight on cash flow and real estate collateral value (such as assisted living and extended care retirement communities). In contrast, traditional lenders place the greatest emphasis on credit history and other factors. As the name suggests, a bridge loan bridges from point A to point B, bridging the time or funding gap and creating a stronger base to receive traditional long-term funding after stabilization.

Benefits of Loans

Bridge lenders are typically not regulated in the same way as banks and as a result are not subject to market influences or underwriting restrictions that banks have. It is also important to note that banking rules and regulations will increase or decrease with the tides of the economy. In an environment of economic uncertainty and imminent recession fears, private short-term capital sources fill a gap that traditional lenders cannot fill. Additionally, these same economic conditions can affect how loans are financed on Wall Street. For example, if the Fed raises interest rates to stave off a recession, pricing new mortgage-backed securities could be difficult and bond sales could be stifled. At the same time, inflation can affect operating costs and capitalization rates. All of these factors affect the availability of capital and the ease or difficulty of accessing it.

On average, it takes banks 120 days to complete a transaction. Bridge Lenders close transactions in approximately 30-45 days. That speed comes at a premium, but in the form of higher interest rates, traditional capital is becoming increasingly difficult to come by, and the flexibility of bridge loans is available in an increasingly regulated market. can give you a competitive advantage.

What if you don’t meet the credit standards of a traditional loan? Or what if you can’t afford to wait 120 days for a transaction? Time is your friend with a bridge loan.

Common uses of bridge loans

Bridge loans are useful in a variety of situations, including opportunistic and value-added acquisitions of nearby properties or complementary facilities (for example, independent assisted living communities acquiring nearby facilities). Likewise, the owner may be ready to retire and hand over control to someone else, requiring a cash out refinance or finding a new owner.

In other situations, operators of longstanding communities with minor wear and tear may choose to refresh and rebrand in order to regain competitiveness in a market saturated with competition and new equipment. Another common example is assisted living community owners who want to fine-tune their building footprint to increase the number of memory care units.

The list of scenarios could go on, but this is a sample of how senior living can use bridge loans to increase occupancy, enhance resident amenities, and drive revenue.

Bridging loans aren’t for every scenario, but neither is traditional bank lending. Diversified financial with professional and reliable options for pursuing short-term financing for all owners and operators as they explore a range of financial possibilities in line with existing market conditions. You need to assemble the toolkit.

Don Pelgrim is Wilshire Finance Partnersis a real estate finance and investment firm that specializes in bridge loans and capital solutions for senior living and healthcare in the range of $1M to $10M nationwide. Prior to joining Wilshire, he was a practicing attorney and held several positions in the banking and financial services industry. He holds a Juris Doctor degree from Loyola He Law School in Los Angeles and a BA in Business Administration from Hofstra University.

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