Capital Chat: Jon Camps of Love Funding
Published on: Monday, December 14th, 2015
In this installment of Capital Chat, Jonathan Camps of Love Funding explains how a bridge loan can be a helpful component in a long-term financing plan.
Capital Chat is a weekly column for Multi-Housing News and Commercial Property Executive in which top industry leaders give exclusive interviews where they share their insights on market trends, investment strategies and more.
Bridge loans have been gaining in popularity as a way to obtain interim financing, with big league companies like AB InBev utilizing the financing to cover the costs of recent deals. Love Funding, a leading FHA MAP and LEAN approved lender, is prepared to take on the influx of interest with its new bridge-to-HUD program, which was launched in May. The program is already garnering significant returns for Love Funding, which reported 25-30 transactions totaling $250 million in the pipeline after only six months.
In this installment of Capital Chat, MHN spoke to Jonathan Camps, senior vice president with Love Funding’s Washington, D.C., office, to get the scoop on how bridge loans can be used as a part of a long-term HUD financing plan.
Can you give an overview of what a bridge loan entails?
In its most simplistic form, a bridge loan enables a borrower to obtain interim financing on their way to obtaining long-term financing. We are a HUD lender, and we provide long-term financing for multifamily, affordable, market-rate and age-restricted properties in addition to healthcare and seniors housing, but there are different obstacles that come along with obtaining HUD financing. We put the bridge loan platform in place earlier this year to help our existing and prospective clients obtain the financing that they need so that at some point down the road, they can get the long-term debt from HUD.
What prompted the offering of bridge loans? Are you seeing increased demand?
I would say that over the last 18 months to 24 months, we’ve started to see a lot of FHA lenders/HUD lenders out there start to offer this type of financing, and what clients are looking for is that one-stop shop. We have found that we have a very strong reputation out there in terms of doing HUD loans, but our clients were looking for a lender that’s able to offer this as well. So really what prompted it was the demand of the customer out there, and since we are going to continue to stay focused on the HUD side of the business, we really needed to put a program such as this in place. We had been working on it for some time, and it coincided nicely with our former parent company [Heartland Bank] being acquired late last year by another Midwest bank [Midland States Bank] who’s very, very interested in making this program successful.
Which obstacles to obtaining HUD funding does the bridge loan address?
There are a few different scenarios by which a borrower may seek a bridge loan. The first has to do with the timing, as the HUD process can take anywhere from six to 12 months for your typical refinance or acquisition. Oftentimes, for example when a borrower is acquiring a property, the seller of that property is not willing to wait the six to 12 months in order for the HUD-insured loan to be put in place. So, a bridge loan enables us to do a quick turnaround of anywhere from 45 to 90 days, which is usually consistent with the time that most sellers are willing to wait. It’s short-term in nature, and allows the borrower to take down the property and then we’ll work with them almost immediately to put the HUD loan in place.
The next scenario has to do with properties that were financed conventionally, through a bank or some other mechanism other than HUD for new construction or for substantial rehab. When that happens, HUD has a three-year rule, which requires borrowers to wait three years from the date of the final certificate of occupancy before you can apply for a HUD refinance loan. So a bridge loan enables a borrower to bridge that gap between when their construction loan has ended, and that will allow them the extra year or two years that they might need in order to get to the point where they’re eligible to submit an application to HUD for the long-term refinance. On the affordable side, right now the same three-year rule applies, but there is a proposal to reduce the timeframe to six months from stabilized occupancy. So even though on the affordable side the timeframe may drop to six months from stabilization, there’s still a need to have some sort of interim financing, and a bridge loan can do that.
Another scenario that we often deal with relates to tax credits on the affordable multifamily side. We may be doing a HUD loan, but oftentimes these affordable transactions involve tax credits, and because of the pay-in schedule that HUD requires, often the tax credit equity needs to be bridged. We have started providing tax credit equity bridge loans as well, and we found that that has been very helpful to our affordable clients in helping them secure the long-term debt they’re looking for. The other piece, which is a form of a bridge-to-HUD, is that we’ve started providing conventional construction and refinancing through this program, along with mini-perm financing. Obviously these loan types are on our book a little longer – maybe in the three- to five-year period – including construction and accounting for the three-year rule, but it’s been a popular addition to the platform. Then the final piece is that we often have properties where the cash flow may not be there, and they need to bring in new management or new ownership. We can use a bridge loan to better position the property for HUD financing down the road.
Which types of financing are well-suited for a bridge loan?
A bridge loan is needed when there’s some sort of timing issue, so acquisitions and refinances are prime for that. We do provide new construction and rehab financing as well, with a mini-perm. We also in some cases provide turnaround and re-positioning financing, and then of course, the big boost to the affordable side of the business is the tax credit equity bridge financing that we provide as well.
How does your one-stop-shop approach benefit your customers?
There is a lot of communication, so it’s a very seamless process for the borrower. They are coming to us because, at some point, they do want that long-term financing and all of the tremendous terms that come along with a HUD loan, including long-term, fully amortizing, low rates, and non-recourse. But they may understand that they need some sort of bridge loan in order to position the property to be eligible for HUD or to put it in a better position where they can maximize their proceeds. So they absolutely want to be dealing with a company that has control over both sides of that process.
Do you expect the demand for bridge loans to increase?
I think we’re going to see a continued need for them. I think that the lenders out there that can really provide a strong bridge product to HUD, they are the ones that are going to be securing more of the HUD business down the road, versus the lenders that have one or the other. The lenders that have both in place will see their business grow quite a bit, which is precisely why we have implemented this program.