As real estate valuations continue to rise across the United States, supported by positive economic factors and heightened investment in both core and revitalizing secondary markets, access to traditional bank debt financing solutions has been relatively robust across stabilized commercial properties. This trend has been particularly evident in coastal markets where greater access to credit has led larger institutional managers, faced with capital deployment requirements, to pay premiums for higher quality product in a search for yield.
What is interesting compared to previous credit cycles, however, is that banks have remained abundantly cautious with new development opportunities and capital improvement projects, a trend that was notably highlighted in the first quarter of 2017 by the Wall Street Journal, with specific references to ground-up and midstream development opportunities for multifamily. This has led to increased demand for higher-yielding, short-term financing solutions such as bridge loans, to fill the financing gap for these more opportunistic and capital-intensive ventures.
Bloomfield Capital is a nationwide industry leader in bridge loan financing solutions with over $500 million of capital deployed since 2008 across all commercial property types. Bloomfield focuses on addressing short-term financing needs for sponsors seeking to execute on urgent transitional projects, frequently characterized by a value-add or capital improvement component. During 2017, Bloomfield observed particular demand for bridge financing in the multifamily and medical office spaces, both of which have become more capital-intensive commercial products in recent years.
Multifamily: With tighter access to credit for new ground-up developments, sponsor groups have increasingly sought opportunities to upgrade older vintage product to current industry standards in order to address heightened demand from millennials, who continue to prefer the flexibility of renting over homeownership.
Medical Office: Higher touch health care procedures, such as surgeries and rehabilitation, continue to move from hospitals into lower cost outpatient settings, which has led to an influx of medical professional groups to the office market, requiring more expensive tenant improvements than traditional corporate users.
Select 2017 Transaction Experience
Denver, CO – Medical Office with Significant Tenant Improvement Requirements
Bloomfield Capital provided a $4.1 million senior bridge loan secured by a 32,000 SF medical office building in the greater Denver MSA, attractively located in a Class A office plaza with a mix of both medical professional groups and larger corporate healthcare tenants including Baxter. The refinancing story for the maturing CMBS note on the property had been complicated due to the recent departure of a physical therapy group looking to expand their practice, as well as, a relocation of the sponsor’s engineering business, which together accounted for 30% of the leasable area.
The sponsor had received interest from a stem cell research group to lease the engineering office space, a more natural fit for the otherwise all medical tenant mix of the property, but needed to first address the matured note and tenant improvement requirements for the prior physical therapy space. Bloomfield’s bridge capital allowed the sponsor to stabilize the financing situation and allow timing flexibility for the new medical tenant transition, while also capturing escrows held against the matured loan to partially address TI requirements.
Chicago, IL – Multifamily Acquisition and Renovation
Bloomfield Capital provided a $4.4 million senior bridge loan to facilitate the acquisition and renovation of a 68-unit apartment complex located in Chicago, IL. The sponsor had been working with an agency lender to finance the acquisition, however, the lender chose not to pursue the transaction as occupancy fell to 85% immediately before closing. Bloomfield’s loan allowed the sponsor to timely acquire the asset and begin to implement their stabilization plan, as current rental rates were ~12% below market.
The sponsor plans a complete renovation of the asset, including replacing the roof, repairing the facade, upgrading the electrical and plumbing systems, as well as renovating the interior of each unit.
