Commercial property lending in the United States continued upward momentum in 2014 and is expected to stay strong in the year ahead. This quick guide helps you jump start your commercial real estate strategies for bridge lending in 2015. Learn more: http://www.us.jll.com/united-states/en-us/services/investors/capital-markets/debt-and-equity-finance

1. Top 5 things to know: Bridge lending
The guide to financing in commercial real estate
Spring 2015

2. Commercial property lending in the United States continued its upward momentum in 2014 and is expected to stay strong
in the year ahead. Liquidity in the debt markets is pushing core pricing, and strong activity coupled with aggressive lending
and competitive structures on the debt side is supporting price strength further out the risk curve into value-add and
opportunistic plays mainly seen in the rising secondary markets. Demand on the equity side from institutional, private funds
and foreign investors is also expected to remain strong in 2015. The next three years will bring an unusually high wave of
loan maturities, a majority of which can be recapitalized without additional equity, further driving lending volumes. Banks, life
insurance companies and CMBS lenders will all become increasingly competitive, driving growth across more markets and
a greater number of geographies.
Thomas O. Fish
Executive Managing Director / Co-Head
Capital Markets
+1 713 888 4047
Tom.Fish@am.jll.com
Mike Melody
Executive Managing Director / Co-Head
Capital Markets
+1 713 888 4089
Mike.Melody@am.jll.com
Tom Melody
Executive Managing Director / Co-Head
Capital Markets
+1 713 888 4053
Tom.Melody@am.jll.com
An introduction

3. Bridge lending:
What’s it good for?1
Bridge loans are structured, non-recourse loans
used for properties that have some element of
transition: remodeling, lease-up, and in some
cases new construction. Often, these “in-
between” loans serve as an excellent source of
capital for stabilizing a property and improving
net operating income before pursuing more
permanent financing.

4. Bridge lending:
Who benefits?2
Additionally, they are often higher-leverage
than loans from banks. Examples of properties
that can benefit from bridge loans are:
• Office buildings that are below market
occupancy, with the lender funding not just
costs for the purchase price, but also for
tenant improvements, leasing commissions,
and building capital
• An apartment building that is being converted
from Class B to Class A where a real estate
developer is completing major in-unit and
common area renovations
• A hotel operator that is changing the flag
of a hotel or completing a major PIP required
by a flag

5. Bridge lending: Market
growth new liquidity3
A testament to the strength of the capital debt
markets, an increasing number of lenders have
entered the bridge lending market. This space,
once dominated by specialty finance companies
has expanded to include private debt funds,
private equity groups, mortgage REITs and
some life insurance companies. In all cases,
the increased capital coming into the space is
chasing yield. And all of the debt funds, mortgage
REITs, and private equity funds are effectively
“manufacturing yield.” After originating a high
leverage first mortgage, they are bifurcating the
loan into a first mortgage and mezzanine loan.
They retain the mezz loan with a rate of 8 to 11
percent and sell the first mortgage to a bank, or
finance the whole loan from a line of credit. With
the use of leverage, they are able to achieve
strong risk-adjusted returns.

6. Bridge lending:
Game on4
Over the past 18 months, pricing on transitional
loans has decreased by 150-300 basis points
due to the uptick in competition and increased
ability for lenders to leverage their own positions.
Blackstone, Starwood and GE Capital are some
of the most aggressive large-loan lenders in
this market. However, this space is not just for
the benefit of the largest institutional deals, but
accessible to middle-market borrowers from
lenders such as A10 Capital, Latitude, Marathon
and PCCP.

7. Bridge lending:
Typical terms5
For most transactions, pricing stands at
LIBOR+300-500, with loan-to-value ratios on the
rise. Leverage often reaches 70 to 80 percent
of the total project cost, including future capital
costs required to reposition/stabilize the asset.
And these loans offer significant prepayment
flexibility, enabling borrowers to sell their assets
or recapitalize without prepayment penalties
upon stabilization.

8. Keith Largay
Managing Director
Capital Markets
+1 312 228 3111
Keith.Largay@am.jll.com
Thank you
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