REAL ESTATE NEWS

As inflation and yields remain volatile — one solution is picking up in commercial real estate — bridge financing. That's the view of Alex Chang, senior managing director of Greystone.

At CRE Finance Council's annual New York event, he told GlobeSt. that these types of loans stand out for flexibility, allowing players in the industry to secure short-term cash flow. There's been increased demand for these lately, especially on the development side.

"You're seeing the bridge business plans and the optionality that people want. People need to insurance-up those properties; you've got to do that with bridge financing," Chang explained.

"If you're gonna get those positions levered, you have acquisitions, and you buy the properties you value."

Along with developments, bridge solutions are also being used for building upgrades, which sets up a potential exit strategy in the future, according to Chang.

"They're looking for a bridge loan to give them the flexibility to do that, so they can exit in the future with a larger takeout permanently," he added.

Everything is Bigger in Texas

Chang's team, which is focused on the residential sector, currently sees the bulk of the bridge activity coming from Texas markets. That comes even as multifamily stress has been building in major Sun Belt markets like Austin in particular, as a result of an influx of supply.

Other gateway markets like California, Florida and New York are also seeing strong bridge activity.

While Chang noted the investor demand for this solution is strong nationally, it's important to evaluate the specific asset locations within the preferred markets. This includes street corners.

"You're seeing pockets of activity everywhere," he emphasized.

Bridge Finance Provides Short-term Hope

But of course, the war in the Middle East, which is leading to an oil shock and a spike in Treasury yields, is causing some uncertainty. It's hard to pencil where interest rates will wind up in the coming months.

However, Chang thinks that some CRE investors have become accustomed to the elevated interest-rate environment in recent years. Others, meanwhile, are holding off and hoping that rates drop. But that's where bridge financing provides an advantage in periods of uncertainty in its allowance for short-term debt to satisfy cash flow needs.

"The key to bridge is that it gives you that flexibility. You sit on a bridge loan for two to three years and then you can get to that future point [and] hopefully refinance at a lower rate," he said.

"Every owner is going to believe that they're gonna be in a lot better position after a couple years."

The question remains whether bridge financing will become even more prevalent for CRE players in times of uncertainty. Or what happens if and when those concerns are put in the rearview mirror. For now, bridge loans are playing a major role in the industry.

Source: GlobeSt/ALM