Bridge Lending Becomes Stopgap Until Capital Markets Improve

Bridge and event-driven lending has become more prevalent in today’s economic and real estate environment because conventional lenders are essentially out of the game.

So says Brett Forman, managing partner of Palm Beach-based private commercial real estate lender Forman Capital.

He tells GlobeSt.com that bridge financing has long been utilized by real estate owners or developers as a short-term step to a permanent financing solution. Now it is being used as a stop gap until the capital markets become more open.

“Most deals do not work for banks right now due to elevated interest rates, the regulatory environment, and cash reserve requirements. Regulators are mandating that banks hold more capital, so most have stopped lending altogether. Bridge lenders can fill the void until broader conditions are more favorable for permanent financing.”

Eric Brody, Managing Partner, ANAX Real Estate Partners, a NYC-based real estate developer, lender, and investment firm dedicated to recapitalization, project completion, and stabilization, tells GlobeSt.com that with interest rates forecasted to drop by the end of next year, short-term financing emerges as a timely solution.

“Amidst this backdrop, non–bank lenders have gained significant traction as the capital source for real estate projects,” he said.

For one, ANAX Real Estate Partners plans to lend $150 million to $200 million toward NYC mid-market multifamily assets.

Another example of this strategy’s growing popularity is CRE lender 3650 REIT, which has announced that the Public Officials Benefit Association, the Seoul, South Korea-based public pension fund, has made a $100 million capital commitment to a vehicle employing 3650’s U.S.-based Bridge and Event-Driven lending strategy.

3650 will use the capital in the US to focus on shorter-term loans for borrowers pursuing ground-up construction, acquisitions, repositionings, recapitalizations, or the restructuring of partnerships.

In Q1 2023, 3650 closed seven loans comprising $240 million across multiple asset classes and had approximately $13.6 billion of loans in servicing.

One example was a $49.5 million loan to complete the construction of The Gabriel, a 288-unit multifamily asset located at 1542 Balch Road in Huntsville, Ala., submarket Madison. It will be delivered in phases and is scheduled to conclude in July 2024.