By Marcia Kaufman, CEO, Bayport Funding
Multifamily and fix-and-flip property owners know the pressure — there are five weeks left on the bridge loan, but there’s six months’ worth of work that still needs to be done.
It’s quite understandable: these kinds of projects now take much longer to complete than they used to, whether due to supply chain issues, the size of the project, permit holdups or any number of surprises that unfold during a remodeling or construction project. Simply put: The clock is ticking, and time isn’t on the owner’s side.
While needing more time is standard as far as construction goes, lenders are much less forgiving. Many value-add or multifamily investment projects are funded with short-term bridge loans that come with 12- or 18-month terms. These loans may allow one short extension, but most don’t.
Financial institutions are already hesitant to approve extensions, and those slim chances become more unlikely at year’s end, when banks begin to offload loans. They’re already constrained by their credit facility’s guidelines and have little wiggle room to work with borrowers, no matter how reasonable the request.
This situation is, unfortunately, not uncommon. Yet it does not, and should not, reflect poorly on qualified borrowers with solid payment histories. The project delays are stressful enough, and an imminent loan maturity deadline makes it even more difficult for borrowers. It’s unfair that borrowers are at risk of defaulting, even with excellent credit and payment history, due to circumstances that are no fault of their own.
But when the loan is good, the projects is sound and you as a borrower have an excellent profile, you’re not out of luck. There are refinancing options out there that provide breathing room and more time to plan.
Refinancing options give qualified borrowers longer runway to complete their projects. These financial products are precisely designed to buy time in the event of delays. Owners don’t need their loans for another year, just a couple of months to get to the finish line. This makes refinancing a great option for borrowers that have limited or no flexibility with their current lender. Specifically, this can work for borrowers if they’re in the process of transitioning a fix-and-flip and are not yet ready for permanent financing, or need more time to lease up a multifamily prior to refinancing a permanent loan.
Experienced borrowers with strong track records in major U.S. residential markets — the Tri-State area, Florida, Texas — can and should consider working with a residential transition lender that specializes in refinancing. A lot of lenders don’t have the flexibility to move from one fund to another, so firms that have both the capability and the experience are incredibly important to have in your corner.
Time is money, and refinancing takes less time than starting from scratch because there’s no buyer/seller dynamic to negotiate. The transaction is between you and yourself, so there’s no waiting for other parties. This means you’re in much better control of your time and can get through the application process faster.
Notably, refinancing is also not as expensive as securing a new loan. Many of the costs associated with short-term bridge loans aren’t incurred again in the refinancing process. For example, title insurance is available at a reissue rate, which is a discount from the premium, in states like New York and New Jersey.
All that being said, now is the time to ensure a smooth transition for an impending loan maturity. The start of the year can present unique challenges for completing refinancing applications. Many businesses are still ramping up after the holiday season, which can result in slower response times. Some companies may operate with limited staff or reduced hours as they transition back to full capacity. Being mindful of these circumstances is essential in preparing loan applications to ensure a smooth process.
Bayport Funding is dedicated to the needs of the real estate investor community in markets like New York, New Jersey, Connecticut and Florida, working in-house to manage and service the loans we issue. This close oversight allows for an easier application process, quicker closings and faster payouts, all things that matter when loan maturity is on the horizon. For more information, call (800) 207-0613 or visit online www.bayportfunding.com.