Bridge Loans Giving Troubled Borrowers a Cushion for 15 Months

In hospitality and entertainment venues, many owners are trying to work through issues with the lenders.

But if an owner possesses a trophy property with viable businesses that would be thriving if it weren’t for COVID, they can find lifelines in the form of bridge loans, according to Eric S. Orenstein, a member of Rosenberg & Estis, P.C. and a leader of the firm’s transactional department.

With these bridge loans, borrowers are paying a high rate for 15 months. These shorter-term, higher-interest loans are a good way for lenders to deploy capital on assets with solid underlying fundamentals. “This is real bridge financing, and we’re now bringing people back to normalcy,” Orenstein says.

As Orenstein looks at these assets that are struggling, he’s assessing when they’ll be operating at full strength again. “If they’re lucky, they’ll start operating in the Fall,” Orenstein says. “But you’re really not ramping back up until 2022.”

With that realization, Orenstein says loans are being originated with the idea that borrowers may need a cushion for 15 months.

With a choppy vaccine rollout and new COVID-19 variants emerging, lenders and borrowers are both coming to the realization that it may be a while before things return to normal. “There has been a slight shift, and people have gotten past [the idea that] they’re opening up next month,” he says.

Before then, lenders were generally offering three-month extensions. Then when those ended, they would offer another three months.

“The reality of the timing is setting in,” Orenstein says.

Orenstein has done a lot of acquisitions, loan modifications and financings despite the growing wait-and-see sentiment.

“When restructuring reserves and cash management and all of that, we’re very conservative on timing,” he says. “We’re also being conservative with the understanding that the vaccines are coming in. But we’re all seeing what is going on with the variants. So we’re building in some cushion.”

In some cases, Orenstein is working through some issues with clients. In other cases, clients are actively seeking troubled assets.

“We’re happy to go in and work stuff out,” Orenstein says. “We’re working it out on the basis of ‘Let’s all be realistic.’ If you’re in the hospitality space, hotel, entertainment and restaurant, you’re not on your feet until 2022. If the deal makes sense, we’re starting to use that structure.”

Billy Meyer, SVP of real estate lending at Columbia Pacific Advisors., told GlobeSt.com in an earlier interview that he sees more groups entering the lending space to focus on providing bridge money for one to three years and recovery capital.

“Until the confidence is built on proforma economics and there’s more certainty in supply and demand, I think there will be an increased volume of new private lenders entering the space,” he says. “There’s more of a need today than there ever has been. Private bridge lenders will have an ability to increase their volumes because of the discipline that banks and conventional lenders are showing as a result of COVID and the uncertainties that are ahead of us in the short-term future.”