Bridge loan or permanent loan for a property in transition

The question to ask first

Can a permanent lender size the loan you need on the income the property has today? If yes, stop: a permanent loan is cheaper and you avoid a second closing. If no, the comparison is not bridge rate against permanent rate. It is the bridge path’s total cost against the equity you would have to put in to make the permanent loan work.

Today’s pricing anchors

Public bridge lenders report what their books earn. KKR Real Estate Finance: +2.9% over benchmark (6.7% weighted average cash coupon)¹. TPG RE Finance: +3.1% over Term SOFR², an all-in yield of 7.3%². Granite Point: S+3.59%³. The floating index was 3.90% (30-day average, October 30, 2026)⁴. Those are seasoned books, not quotes, and they carry leverage of about 65% to 65.9% on average.

Two paths for a 60-unit value-add purchase

Illustration. A 60-unit building is under contract at $9,000,000. It is 78% occupied and earns $430,000 of NOI. The buyer plans a $900,000 renovation that should lift NOI to $650,000 within 24 months.

Path A: permanent loan now. A bank lends on in-place income at an illustrative 6.60% fixed on a 25-year schedule at 1.25x coverage. The buyer funds the renovation with cash.

Path B: bridge now, agency later. A bridge lender funds 70% of total cost, purchase plus renovation, at an illustrative 7.15% floating and interest-only, with a 1% origination fee and a 1% exit fee. After 24 months the property refinances into an agency loan.

First 24 months (illustration)	Path A: permanent now	Path B: bridge
Loan at closing	about $4,207,000	$6,930,000 ($6,030,000 at closing, $900,000 drawn for the work)
Equity in, including the renovation	about $5,693,000	$2,970,000
Interest over 24 months	about $546,500	about $961,500
Principal repaid	about $141,500	none
Origination and exit fees	lender fees only	about $138,600
Rate cap	none	extra; priced at closing

Path B costs about $553,600 more in interest and fees over two years (before the cap), and Path A pays down $141,500 of principal. In return, Path B needs about $2,723,000 less equity. Spread over two years, the extra cost works out to roughly 10% a year on the equity it replaces. Whether that is cheap depends on what that equity would earn elsewhere, and on whether you have it at all.

The exit for Path B. At $650,000 of NOI and an illustrative 6.0% cap rate, the building is worth about $10,833,000. An agency loan at an illustrative 6.00% on a 30-year schedule at 1.25x coverage sizes to about $7,228,000, enough to repay the $6,930,000 bridge loan. If the takeout rate were 6.75% instead, the same test would size the loan near $6,681,000, about $249,000 short of the payoff. That is the risk you carry on the bridge path, and the reason to size the exit at a higher rate than today’s.

The exit for Path A. The bank loan can be refinanced into the same agency loan once the work is done, but a step-down premium applies. On a 5-4-3-2-1 schedule, paying off at the end of year two costs 4% of about $4,065,000, roughly $162,600.

The costs people miss on the bridge path

• Interest reserve. A property that does not cover its interest during the work needs a reserve funded at closing, which is equity by another name.
• Extension fees and tests. If the plan runs long, each extension costs a fee and requires a test you may not pass on that date.
• The rate cap. Required, priced at closing and repriced at each extension.
• Two sets of closing costs. Appraisal, legal and title twice, plus the takeout lender’s third-party reports.
• Recourse. Institutional bridge lenders are usually non-recourse with a completion guaranty; banks and private lenders more often want a guarantee.

The costs people miss on the permanent path

• Cash you cannot get back quickly. The equity in Path A stays in the deal until a refinance.
• Covenants tested on today’s NOI. A bank loan made during a lease-up can trip a coverage covenant while units are offline.
• The step-down. Refinancing after the work triggers the premium shown above.

When the bridge path is the wrong call

• The property is already stabilized. MBA’s count of loans coming due in 2026: $875 billion, 17% of $5.0 trillion outstanding⁵. Many owners reach for a bridge when the real problem is a permanent loan sized at today’s rates. Price permanent debt first.
• The business plan has no margin. If NOI must reach its target and rates must stay where they are for the exit to work, the plan is fragile.
• You cannot fund extensions or a new cap if the timeline slips.

Have a transitional property? Send the business plan, budget and current rent roll, and we will price the bridge and permanent paths against the same exit.