Bridge Loan Borrowers Often Overlook Banks. Here’s Why That Could Be A Mistake
When commercial real estate borrowers set out to find a bridge lender, they usually start by making calls to debt funds. This makes sense, since not all traditional lenders offer this type of financing.
However, some banks are also offering low rates and creating strong partnerships with clients through bridge lending, and now may be the time for CRE borrowers to reconsider their usual lending strategy and put banks back in the mix.
“Many borrowers don’t realize that there are some banks that offer CRE bridge loan products on both a regional and national scale,” said Solomon Garber, senior vice president of business development at Northeast Bank. “In many cases, turning to banks first could be the right choice, but some borrowers don’t even consider them because they are unaware of the benefits banks have to offer when it comes to bridge lending.”
Garber and his colleague Jonathan Levirne, who also serves as a senior vice president of business development at Northeast, sat down with Bisnow and explained some of the main benefits banks have to offer borrowers looking for a bridge loan.
Banks Look For Long-Term Partnerships
Levirne said that banks are hoping to create long-term relationships with their borrowers. This means that a bank like Northeast will be motivated to keep a loan on its books for longer than other bridge lenders, even if it’s a front-facing, short-term loan at the outset of the deal. Also, since banks do not have pressure to recycle capital because they are funded primarily from deposits, they can be more flexible and accommodating when it comes to offering modifications and extensions.
“We want to have an all-inclusive relationship with a borrower, which includes deposit account opportunities, so there’s a lot of motivation on our part to give good deals and establish a long-term relationship,” Levirne said.
Banks Don’t Need To Rely On Outside Leverage
Garber said that Northeast Bank, like most banks, is funded primarily by deposits, and there’s no pressure from investors or repo lenders to pull money out.
“The bank’s capital is permanent, so we’re not being driven by investors who are looking for return targets,” Garber said. “Once the money is in a deal, it stays there.”
The Bank Can Often Offer The Lowest Rates
Garber said that along with their focus on long-term relationships, banks like Northeast can often offer the most compelling, low-leverage rates on bridge loans.
He recalled a situation where a borrower owned four contiguous mixed-use buildings in New York City. The business plan was to vacate the properties and sell their 80K SF of air rights to a developer. The borrower came to Northeast Bank, which was able to structure reserves and provide a low-leverage bridge loan that gave the borrower enough cash flow to cover operating expenses and buyouts.
“There are a lot of deals that other lenders may not feel comfortable making that we are able to step in and help with,” Garber said. “It all comes down to the fact that as a bank, we have permanent capital, so we’re able to take the risk that other lenders might shy away from.”
This feature was produced in collaboration between Studio B and Northeast Bank. Bisnow news staff was not involved in the production of this content.
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