There is a tremendous amount of liquidity within the multifamily bridge lending space. Banks, debt funds, private money lenders and life companies will be active and keep an eye out for greater allocations in 2026. There has been lots of dry powder ready to transact, but not enough deals available. If short-term rates trend downward, there will be an uptick in transactions and bridge lending. All this available capital will lead to competitive spreads and creative underwriting to get bridge dollars out the door. Lender spreads have generally compressed over the last 12 months making bridge lending more palatable for a variety of scenarios. As lenders compete to place debt, watch for them to stretch underwriting metrics.
Borrowers will see 65% to 75% leverage, with a few lenders possibly going up to 80%. All-in rates will start in the high 5% to 6% range for the strongest deals. Rates for lower leveraged opportunities with higher in-place debt yields are typically in the SOFR+ 225 to 250 basis point range. Higher leveraged deals with a lower going-in and/or stabilized debt yield will start at SOFR+ 275 basis points. At the highest end of the leverage range, spreads will start at SOFR+ 300 to 325 basis points.
Loan minimums from $15M to $25M will grab the most competitive terms and lenders will want to see meaningful equity in the deal. There will be increased scrutiny on insurance, taxes and rent growth. Stable NOIs will be highly scrutinized as lenders will not just assume an arbitrary 3% to 5% of rental growth.
Banks such as Bank OZK, Banc of California, Cathay Bank, Axos Bank, The Bancorp and Regions will be active. Borrowers will see 60% to 65% leverage. Banks might decide to use an “underwritten rate” to size their loans by using an artificially high interest rate with a debt service coverage ratio test on the stable underwriting.
Watch for debt fund and private money lenders such as Arbor Realty Trust, Greystone, MF1 Capital, Ladder Capital, LoanCore Capital, Avatar Financial Group, TPG, CrossHarbor Capital Partners, A10 Capital, LaSalle Debt Investors, Bridge Investment Group, RRA Capital, RXR/Hudson Realty Capital, Mesa West, Prime Finance, Ready Capital, 3650 Capital, Emerald Creek Capital, Pensam, Post Road Group, Revere Capital, W Financial, Thorofare Capital, BridgeInvest, Hankey Capital, Obra Real Estate, Avant Capital, Edgewood Capital and AVANA Capital to compete. Debt funds are placing non-recourse loans but will use partial recourse as a credit enhancement for select cases.
Most multifamily bridge loans completed over the last 36 months have typically involved newer product that was in lease-up or coming off construction debt, but a traditional refinance would require a substantial cash-in. Anticipate more value-add opportunities for 1990s to 2000s vintage properties as rent growth begins to increase and cap rates level off. Class B- to B+ products that have A- level competitors in the market will be sought after.
Primary targets are newly constructed properties in desirable submarkets with strong sponsorship. Lenders appreciate the equity that is remaining in the transaction from construction, their per unit basis and the bridge story typically consists of finalizing lease-up and executing a strategy to maximize NOI for two to three years prior to a sales exit. In contrast, value-add bridge lending remains more difficult given the additional work required to effectuate NOI and general risk associated with a three-year renovation plan.
Given that the majority of bridge loans are for newer vintage assets, most lenders are looking for a story where future supply will not substantially impact the asset. Markets with a robust construction pipeline without a substantial migration or employment story will be tough. The Smile states will remain active, but some lenders have been burned by oversupply in select Texas markets, so drilling down into specific submarkets and supply coming online will be important.
Sponsor experience, strong track records and financial wherewithal are important but are typically reflected in the overall transaction profile. Strong sponsors typically warrant tighter credit spreads given the perceived risk profile. Experience will be key and the likelihood of getting favorable bridge terms skyrockets if the borrower can point to similar success stories in similar markets. A strong relationship with a property management company and being able to tell the story are also desired.
