Bridge-to-Perm: A financing strategy using short-term bridge debt (typically 2-3 years, floating rate, interest-only) to acquire or renovate a property, followed by refinancing into long-term permanent agency debt (Freddie Mac or Fannie Mae) once the property is stabilized.
When Is Bridge-to-Perm the Right Strategy?
Agency loans offer the best rates—but they require stabilized properties. If your deal doesn't qualify for Freddie Mac or Fannie Mae today, bridge financing buys you time to get there:
| Scenario | Why Bridge Is Needed | Path to Agency |
|---|---|---|
| Low Occupancy | Below 85-90% economic occupancy | Lease-up to 90%+ for 90+ days |
| Value-Add Renovation | Major CapEx needed, units offline | Complete renovation, stabilize rents |
| Turnaround | Distressed property, poor management | Fix operations, rebuild NOI |
| Repositioning | Changing tenant profile or use | Achieve target rent roll |
| Short Hold Period | Plan to sell within 3 years | May not need perm—bridge may suffice |
The Core Trade-Off: Bridge debt is expensive (SOFR + 300-500 bps) but flexible. Agency debt is cheap (Treasury + 150-250 bps) but requires stabilization. Bridge-to-perm captures both: flexibility when you need it, then low cost once you've executed.
What Are Bridge Loan Characteristics?
| Feature | Typical Bridge Terms | Notes |
|---|---|---|
| Rate | SOFR + 300-500 bps | Floating rate, no cap required but recommended |
| Term | 2-3 years (24-36 months) | Often 1+1+1 with extension options |
| Amortization | Interest-only | Preserves cash for renovations |
| LTV | 70-80% of as-is value | May fund to 80-85% of as-stabilized |
| LTC | 80-90% of total cost | Including renovation budget |
| Prepayment | 0-1% after 6-12 months | Minimal lockout, flexible exit |
| Recourse | Partial or full recourse | More recourse = better terms |
What Are Freddie Mac Perm Requirements?
To refinance out of bridge into Freddie Mac SBL, your property must meet stabilization requirements:
| Requirement | Threshold | Common Pitfall |
|---|---|---|
| Occupancy | 90%+ economic for 90+ days | Trailing 3-month average, not spot |
| DSCR | 1.20x minimum (1.25x preferred) | Using market rents, not proforma |
| LTV | 80% maximum | Current appraised value, not as-stabilized |
| T-12 | 12 months of operating history | Can be reconstructed if ownership changed |
| Physical Condition | No deferred maintenance flags | PCA must show property in good condition |
The 90/90 Rule: 90% occupancy for 90 days sounds simple—until you have a move-out in month 2. Track your trailing average carefully. One bad month can reset the clock.
How Do I Structure the Timeline?
Typical Bridge-to-Perm Timeline
| Phase | Timeline | Key Activities |
|---|---|---|
| Acquisition + Renovation | Months 1-6 | Close bridge, begin renovation, minimal disruption |
| Lease-Up | Months 6-18 | Complete renovation, aggressive marketing, fill units |
| Stabilization Seasoning | Months 18-21 | Maintain 90%+ for 90 days, build T-12 track record |
| Agency Underwriting | Months 21-24 | Apply for Freddie Mac, appraisal, documentation |
| Agency Close | Month 24-26 | Close permanent loan, pay off bridge |
Buffer Everything: Renovations take 1.5x longer than projected. Lease-up is slower than your proforma. Get a 3-year bridge term even if you plan to exit in 2 years. The extension option is cheap insurance.
What Is a Forward Rate Lock?
A Forward Rate Lock lets you lock your permanent loan rate months before you're ready to close. This protects against rising rates during your stabilization period:
| Feature | Standard Rate Lock | Forward Rate Lock |
|---|---|---|
| Lock Period | 45-60 days | Up to 12 months |
| When Available | Property must be stabilized | Can lock during lease-up |
| Cost | Included in spread | 10-25 bps upfront fee |
| Risk | Rate moves during underwriting | Rate protected, must close by expiration |
The Forward Lock Trap: If you lock forward but don't stabilize in time, you lose the lock fee AND face current (potentially higher) rates. Only lock forward when you're confident in your stabilization timeline.
What Are the Execution Risks?
| Risk | What Happens | Mitigation |
|---|---|---|
| Stabilization Delay | Lease-up slower than projected, miss bridge maturity | Longer initial term, extension options, conservative projections |
| Rate Spike | Perm rates rise, DSCR doesn't work at takeout | Forward rate lock, rate cap on bridge |
| Value Decline | Cap rate expansion, perm LTV doesn't work | Conservative as-stabilized assumptions, equity buffer |
| Renovation Overrun | Costs exceed budget, erode returns | Contingency in budget (15-20%), experienced GC |
| Bridge Extension Cost | Extension fees, higher rate on extension | Negotiate extension terms upfront, pre-funded reserves |
How Do I Size the Bridge for Perm Takeout?
Work backwards from your permanent loan target to size the bridge appropriately:
Takeout Analysis Example
Scenario: Value-add acquisition. Purchase price $2.5M, $400K renovation budget.
| Metric | Bridge (As-Is) | Perm (Stabilized) |
|---|---|---|
| Value | $2,500,000 | $3,200,000 |
| NOI | $150,000 | $210,000 |
| Max LTV | 75% = $1,875,000 | 80% = $2,560,000 |
| Max DSCR (1.20x) | N/A (I/O) | $175K DS = ~$2,400,000 |
| Loan Amount | $1,875,000 | $2,400,000 |
| Equity Required | $1,025,000 | Cash-out $525,000 |
In this scenario, the perm loan pays off the bridge ($1,875,000) plus returns $525,000 of the original equity investment.
The Recycled Equity: Bridge-to-perm done right returns a significant portion of your equity at takeout. You keep the property, get long-term fixed-rate debt, and redeploy capital to the next deal.
What Should Bridge Loan Documents Include?
Bridge Loan Term Sheet Review
- Extension Options: How many extensions? At what cost? What conditions?
- Prepayment Terms: When can you prepay without penalty? Is there a minimum interest period?
- Future Funding: Is renovation budget funded at close or drawn in stages?
- Interest Reserve: How many months of interest are pre-funded?
- Rate Cap Requirement: Is a rate cap required? At what strike?
- Exit Fee: Is there an exit fee on top of any prepayment premium?
Bridge Lender Comparison
| Lender Type | Typical Rate | Pros | Cons |
|---|---|---|---|
| Debt Funds | SOFR + 350-500 | Flexible, fast, will do complex deals | Higher rates, more fees |
| Banks | SOFR + 225-350 | Lower cost, relationship lending | Slower, more requirements |
| Agency Bridge | SOFR + 200-300 | Cheapest, built-in perm takeout | Still need ~80% occupancy |
| Private/HNW | 10-14% fixed | Fast, minimal DD | Expensive, short terms |
The "Cheap" Bridge Trap: Don't optimize for the lowest bridge rate if it means worse terms elsewhere. A 50 bps cheaper rate means nothing if you're paying 2% extension fees and have no prepayment flexibility.
What's the Exit Coordination?
Timing the bridge payoff and perm closing requires coordination:
| 6 Months Before Maturity | Start agency application process |
| 4 Months Before | Confirm stabilization metrics, order appraisal |
| 3 Months Before | Rate lock decision (or forward lock if earlier) |
| 2 Months Before | Complete underwriting, clear conditions |
| 1 Month Before | Schedule closings, coordinate payoff |
| Week Of | Fund perm, wire to bridge lender, same-day close |
The Bottom Line: Bridge-to-perm is the path when your property isn't agency-ready today. Execute the business plan, stabilize the property, and graduate to long-term fixed-rate debt. But respect the risks: budget conservatively, build in timeline buffer, and never assume stabilization will go exactly as planned.