Bridge Loan for Lease-Up
Lease-up bridge is for a building that will cash flow when it is leased, and does not today. A new delivery, a large vacancy block, or a tenant that just left. Lenders underwrite velocity, concessions, the quality of whoever is still paying, and what happens if absorption takes two more quarters than the model. The property itself may be well built and well located; the gap is purely that leases have not caught up to the physical asset yet.
This is not a renovation story. If most of the dollars are interiors and the vacancy is the byproduct of that work, use value-add bridge. Terms sit on Bridge Loans. The usual exit is bridge to permanent or stabilized perm once occupancy clears that takeout’s test. A building that is both under-leased and mid-renovation usually still belongs on value-add, since the capex list is what a lender underwrites first.
How This File Is Underwritten
Occupancy and the signed pipeline come first. Executed leases with deposits count. LOIs, tours, and a broker’s call list do not. Effective rent has to match what is leasing in that submarket after concessions. A pro forma at asking rent with one month free ignored is how these files miss the takeout test even after they “lease up.” A rent roll padded with month-to-month tenants on short notice reads differently than one built on multi-year leases, even at the same headline occupancy.
Carry is the product. Interest, taxes, insurance, and operating shortfall until the building is leased. Size the reserve to a base case plus slack, not to the week every unit is projected to go to lease. A reserve that dies in month nine on an 18-month lease-up is an extension request with no cash.
The permanent test is the target, not the close test. In-place numbers in the calculator will often fail today. That is expected. The lender still wants a date and an occupancy level at which DSCR and debt yield clear a named takeout: agency, life, bank, or CMBS. Those hurdles are not the same number. A sponsor who has already had a conversation with the intended takeout lender about that hurdle rate is in a stronger position than one guessing at the number.
Remaining tenancy matters when the building is only partly vacant. One credit tenant on a long lease is ballast. A roll of month-to-month local users is not. Sponsor liquidity is what pays for a slow lease-up after the reserve. If the reserve is the only dry powder, the term sheet is tighter than it reads. A sponsor with liquidity beyond the reserve is a materially different credit than one who is counting on the reserve lasting exactly as modeled.
What Usually Binds
- Interest reserve and stated term vs. realistic absorption in that submarket
- In-place coverage floor some lenders still require even on lease-up
- Concession drag on the NOI you will show a takeout lender
- Quality of remaining tenants
- Who is leasing the building and whether they have a record there
- Sponsor cash if leasing slips
What To Send First
- Current rent roll, vacant units, executed leases in the pipeline
- T12 even if it is thin
- Asking rents, concession policy, and a few signed leases as comps
- Carry budget through the full term, not through the optimistic case
- Leasing plan and the firm doing the leasing
- Intended takeout and the occupancy and DSCR that program needs
When This Is The Wrong Product
If the building is leased and you only want better terms, use refinance or permanent. If vertical construction is still running, use construction. If vacancy is from a gut rehab, say so and use heavy rehab or value-add bridge. Do not call a construction loan a lease-up bridge to skip inspects and a draw schedule.
FAQs
Do signed LOIs count as leased?
No. Executed leases with deposits count. LOIs are color.
What occupancy do we need for takeout?
Whatever that takeout box requires. Get the number before you size the reserve. Agency, life, bank, and CMBS are different.
What if lease-up misses?
Extension and more equity. A surprise permanent loan on a half-empty building is not the backup.
Can TI and commissions sit in the bridge?
Often, inside a reserve tied to executed leases. That is not a substitute for the leases.
Does the type of tenant matter as much as the occupancy number?
Often yes. A building at 70 percent leased to strong credit tenants can underwrite better than one at 85 percent leased to a mix of local, unproven users, since the lender is pricing the durability of that income, not just the percentage.
Will they size to stabilized rent on day one?
Not for the full loan. Stabilized rent is the exit conversation.