Timing is of the essence when businesses consider purchasing industrial properties. Warehouses, distribution centers and logistics hubs are being sought after, and transactions are quick.
Conventional financing, like long term commercial mortgages, can take months to close. Here a bridge loan example is useful in illustrating how temporary funds can be used to seal deals in a short time whilst saving time to raise long-term funds.
In this article, we will take a tour of what bridge loans are, the importance of bridge loans in warehouse financing and acquisition and a close look at a bridge loan example with that of industrial property buyers.
What Is a Bridge Loan?
A bridge loan is a temporary financing that takes over from the urgent need of finances and long-term financing. Investors, builders and entrepreneurs use bridge loans to secure properties quickly when they do not have permanent funding.
Bridge loans can be processed and financed in weeks or even days unlike the conventional commercial loans that might take months to be underwritten, documented and ultimately financed. This speed requires them to work best on opportunities that are time-sensitive like acquiring a warehouse.
Why Bridge Loans Work Well for Industrial Properties?
Warehouses are the key element of the modern supply chain and digital economy of e-commerce. Investors and businesses are prone to circumstances in which they are forced to take immediate action:
- Strong competition: Warehouses that are located in prime areas sell quickly.
- Deals that are time-sensitive: Sellers are willing to transact with buyers who can make a fast decision.
- Future refinancing: Buyers can have intentions of refinancing to a long term loan after stabilizing.
A bridge loan example is applicable here, explaining how businesses can acquire industrial real estate without missing out because of slow financing.
Bridge Loan Example: Acquiring a Warehouse
To get a sense of how this financing tool can be useful in the real estate transaction, let us consider a practical bridge loan example.
Scenario
One of the logistics companies determines a 100,000-square-foot warehouse at a strategic location near a major highway. The real estate is priced at $8 million. Nevertheless, the traditional lenders are not able to do it so fast, as the seller needs a 30-day closing.
Financing with a Bridge Loan
The buyer collaborates with a lender which offers a bridge loan. Here’s how the deal looks:
- Purchase Price: $8,000,000
- Loan-to-Value (LTV): 70%
- Bridge Loan Amount: $5,600,000
- Buyer Equity Contribution: $2,400,000
- Term of the Loan: 12 months (renewable)
- Interest: 9% per annum interest, interest payments only.
- Exit Strategy: Refinance to a long-term commercial mortgage within 9 months.
Why Does It Work?
- This firm consumes the deal within 30 days- which meets the needs of the seller.
- Fast Bridge Loan Approval provided the purchaser with an upper hand as compared to other prospective investors.
- The property starts to bring rental income instantly.
- In 9 months, the company gets refinanced into a conventional 20-year loan with reduced interest and repays the bridge loan.
This bridge loan example demonstrates how temporary funding can be used to purchase an industrial property within a short period of time with the buyer having time to settle on long-term funding.
Key Benefits of Bridge Loans in Warehouse Acquisitions
Based on the above bridge loan example, a few advantages are significant in the context of purchasing a warehouse:
1. Speed of Closing
Bridge loans enable buyers to match up with the rapid schedules of sellers and make them more competitive.
2. Flexibility
They embrace different requirements, acquisition to renovation or repositioning.
3. Short-Term Solution
They help in offering a short term solution until long term funding is acquired.
4. Leverage for Growth
Businesses are also able to acquire warehouses within a short period of time, and they do not miss the opportunity to acquire quality industrial resources.This is the reason why most investors want to take bridge loans as an intermediate stage to long-term Industrial Property Loans to gain stability.
Risks to Consider with Bridge Loans
Although the bridge loan example demonstrates evident advantages, the borrowers are also to consider the risks:
- Interest rates that are higher than conventional loans.
- Short-term, I need to have a clear exit strategy.
- The equity requirements, where the lenders usually finance 60-75 percent of the purchase price.
The trick is that you have to be collaborating with an established lender who knows the commercial real estate business and is able to package terms that will meet your objectives.
Bridge Loan Example in Competitive Markets
Bridge loans provide a competitive advantage to buyers of warehouses in logistic centers in competitive real estate markets. As an example, two buyers may be competing on the same piece of property:
- Buyer A is under a conventional loan requiring him 90 days to close.
- Buyer B also obtains a bridge loan, and closes within 30 days.
Even when the price is a little lower, Buyer B will almost always be selected by the seller since certainty and speed is important. This situation is an illustration of the strength of a bridge loan example in actual transactions.
Why Work With Loanlocker for Bridge Loans?
In the process of identifying the funding options, it is important to select the appropriate lending partner. Loanlocker focuses on assisting businesses to acquire finance promptly and effectively in commercial ventures. The reason why you want to work with Loanlocker is because:
- Easy approvals and financing: Suit products that require quick acquisition.
- Tailored solutions: Flexible terms tailored to warehouse and industrial properties.
- Seasoned personnel: Knowledge on commercial real estate finance.
- National presence: Availability of a wide range of lending facilities.
You can purchase a single warehouse and/or you can grow your portfolio of logistics, it doesn’t matter, Loanlocker has the financing options to move fast and act with confidence.
Conclusion
Bridge loans are effective fast-close tools used to acquire warehouses as this bridge loan example illustrates. These give the flexibility, speed and leverage that companies require to compete in the current industrial real estate market.
In a nutshell, Bridge Loans Can Help You Close More Real Estate Deals because it provides you with the edge of velocity and certainty when you are on tight deadlines.
Loanlocker can assist you in case you are looking to purchase an industrial property and require financing that can work in as quick a time frame as you can.
Find out how we can help you with your commercial financing by visiting https://loanlocker.com/.