A bridge loan finances a property between two states: from the day it is bought, or from the day an existing loan matures, to the day the business plan is complete and the asset can be refinanced with long-term debt or sold. A construction loan does the same for a property that is still being built or finished. Both are what lenders call transitional loans, because the collateral is changing while the loan is outstanding.
Banks have pulled back from transitional real estate, particularly assets that are not yet stabilized. That is where a well-secured loan from a lender who understands the asset is worth most to a sponsor, and it is our bridge and construction focus area.
The main loan types
Acquisition bridge
Finances the purchase of a property that needs work, leasing or repositioning before it qualifies for permanent financing. Typical uses are value-add apartments, offices or retail centers with vacancy, and industrial buildings between tenants.
Bridge-to-permanent and maturity bridge
Replaces an existing loan that is maturing before the property is ready for a long-term lender, or takes out a bank that is reducing its real estate exposure. The sponsor gets time; the new lender gets an asset whose plan is already partly executed.
Construction completion
Finances the last stage of a project whose original lender has stepped back, whose budget has grown or whose capital stack needs to be rebuilt. The lender must understand exactly what is left to build and what it will cost.
Heavy renovation
A bridge loan with a large future-funding component sized to a renovation budget, released in draws as work is completed.
How the loan is sized
Transitional loans are sized against more than one measure, and the lowest answer wins. We lend up to 75% loan-to-cost and up to 65% loan-to-value. Lenders also look at the value the plan should create, but a prudent loan should make sense on today’s value, not only on the value the plan promises. Leverage: loan-to-value, loan-to-cost and debt multiples explains each measure.
Illustrative arithmetic
The numbers below are illustrative only, not terms of any Caldrion loan.
| Item | Amount |
|---|---|
| Purchase price | $30.0M |
| Renovation budget | $6.0M |
| Total cost | $36.0M |
| As-is appraised value | $32.0M |
| Loan at 70% of cost | $25.2M |
| Loan at 65% of as-is value | $20.8M |
On these illustrative figures, the loan-to-value test binds, so the loan would be sized near $20.8M at closing, perhaps with part of it held back as future funding for the renovation. If the as-is value were higher, the cost test might bind instead. The sponsor’s equity—here at least $15.2M of the $36.0M cost—is the cushion beneath the loan.
Future funding and draw controls
Most bridge and all construction loans release part of the money after closing. The lender holds back a future funding amount and advances it against completed work. A typical draw process includes:
- A draw request with invoices, lien waivers from contractors and an updated budget.
- An inspection by a construction consultant confirming the work in place.
- A check that the remaining budget is still sufficient to finish (an in-balance test). If costs have risen, the sponsor funds the gap before the next draw.
- Retainage, where a portion of each contractor payment is held until completion.
Strict control of construction draws means loan proceeds are released only as value is created. It is also the lender’s best early warning: a project that stops submitting clean draws is a project in trouble.
Interest reserves
A property in lease-up may not earn enough to pay interest. An interest reserve is part of the loan set aside at closing to pay interest until income catches up. It turns an awkward schedule into a workable one, but it is not free: interest on the reserve itself is part of the cost, and the reserve must be sized to a realistic, not optimistic, lease-up. See amortization, call protection, PIK and interest reserves.
Guaranties and recourse
Transitional real estate loans are usually non-recourse to the sponsor for repayment, with targeted guaranties:
- Completion guaranty: the guarantor commits to finish the project.
- Carry guaranty: the guarantor covers interest, taxes and insurance until the property can.
- Non-recourse carve-out guaranty, often called a bad-boy guaranty: full recourse if the borrower commits specified acts such as fraud, misapplication of funds or a voluntary bankruptcy filing.
Collateral, security and guarantees covers how these are drafted.
The exit
Every transitional loan is a bet that the exit will be available when the plan is done. We test the exit by asking what a permanent lender would lend on the stabilized property at today’s rates, what a buyer would pay and how far either could fall before our loan is impaired. Clear exits come from quality assets in major metros and business-friendly states, where liquidity for sale or refinance is deep. Coverage and liquidity shows how debt yield and refinance tests work.
What to send
For a real estate request, our published checklist asks for an executive summary or deal memo, the schedule of collateral, the borrower or sponsor bio and track record, and the sources and uses of funds. It also helps to include current operating figures (a trailing 12-month statement and rent roll), the budget and schedule for any work, the leasing plan and the expected exit. How to request a loan has the full list.
Red flags
- A loan that only works on the as-stabilized value.
- A budget without contingency, or a contractor without the balance sheet to stand behind it.
- An interest reserve sized to the most optimistic lease-up.
- Sponsor equity that is mostly fees, land appreciation or promote rather than cash.
- An exit that depends on one buyer, one tenant or a rate environment that does not exist today.
Further reading
For how we think about the market, read Good assets at an awkward moment. For examples, see Project Juniper, Project Saguaro, Project Magnolia and Project Heritage. Back to the chapter overview.
This entry is general information as of November 2026, not investment, legal or tax advice, and not an offer of securities.