Bridge loans are becoming easier to get for real estate investors throughout California.
That’s partially thanks to more activity and higher returns on real estate investments as the state economy continues to recover and escape the doldrums of the post-2008 years. According to one study, business deals rose 5% in 2014 from the prior year thanks to an improving economy. BizBen.com founder Peter Siegel noted that better business performance was encouraging more business owners to sell their operations, helping deals rise to over 15,500 for the year. The growing activity is driving demand higher for commercial real estate, which has seen steady price gains throughout the year.
It’s also helping the residential market. According to National Association of Realtors Chief Economist Lawrence Yun, existing home prices are expected to rise 4% in 2015 and multi-family housing starts are expected to grow by 15%. This means there is “strong demand for renting,” as Yun puts it.
All of this is translating into one key trend: more demand for financing real estate projects in the state. With more demand for commercial and residential rentals, there is a clear opportunity for developers, who are turning to short-term financing to help meet demand. Aware of the strong market, more banks and specialty financing firms are looking to issue short-term financing to developers.
Thanks to both trajectories, one trend is clear: bridge loan standards are easing and credit is flowing more quickly for developers and real estate investors throughout California.
What Is a Bridge Loan?
Bridge loans are short-term debts that investors frequently acquire to ensure enough cash is available while they’re waiting for financing from another source. Bridge loans are often used in real estate during the period of time between the sale of one property and the acquisition of another. They’re frequently used by investors so that they can move from one project to another while still having enough cash to fund operations and investments.
The Value of Bridge Loans
Bridge loans are usually offered at no more than 70% loan-to-value, although rules will vary from lender to lender. While they may have a higher interest rate than other, more long-term loans, the flexibility and liquidity they offer are priceless to investors who need to make sure cash flow is positive to ensure new investments can get off the ground.
For real estate investors who want to make sure they have enough cash to keep a project going, bridge loans are an attractive opportunity. They are also a great way to develop and maintain a financing relationship with a capital partner, and many developers will keep bridge loans as one tool in their financing arsenal to make sure that they never run out of cash or credit while in operation. Additionally, the credit history of an established bridge loan can often be used to secure lower rates for longer-term loans, making the interest on a bridge loan sometimes pay for itself.
Bridge Loans in California
With the demand rising and standards falling, many real estate investors may think it’s easy to find a bridge loan for a clear slam-dunk property. In reality, many investors are finding the bigger banks are still risk-averse and hesitant to invest in obviously strong projects because they’re either too small or too risky.
The reality is that, with today’s low interest rates, many banks are simply not interested in providing liquidity at such a low rate of return.
Fortunately, real estate specialists know and understand the market and the unique opportunities that are available in California’s booming market. That’s way firms like Socotra Capital are providing bridge loans to real estate investors and developers at a faster rate than ever. With a bridge loan, you won’t have to wait before tackling your next real estate development project.
Your real estate assets are your best investments for the future. At Socotra Capital, we’re proud to be the premier direct hard money lender for California real estate. Contact us today to learn more about how we can help.