Bridge Loans Part 2: Understanding Pricing Components and Floating Rates
Bridge loans are short-term, floating-rate financing solutions for transitional commercial real estate deals, priced through three key components: index, spread, and servicing fee. Randy Efron from Skylatus Property Capital breaks down how these elements determine costs.
Bridge Loan Interest Rate Breakdown
Most bridge loans use 30-day LIBOR (or its successor SOFR) as the index, reset monthly for floating rates.
Full Rate Formula:
Interest Rate = Index (LIBOR) + Spread + Servicing Fee
| Component | Description | Typical Range |
|---|---|---|
| Index | 30-day LIBOR/SOFR base rate | Market-driven |
| Spread | Lender’s risk premium based on property type, location, sponsor track record, business plan | 3% – double digits |
| Servicing Fee | Covers payment collection, draw requests, borrower support | 0.05% – 0.50% (5-50 bps) |
Factors Driving Spread Pricing
Lenders assess risk via:
Property type and location
Business plan strength
Sponsor’s experience and credit
Fund covenants and market yields
Higher-risk deals (e.g., hotels in secondary markets) command wider spreads.
Practical Implications for Borrowers
Floating rates expose borrowers to index volatility, but spreads reflect deal-specific risk. Some lenders bundle servicing into spreads; others itemize separately.
Contact Randy Efron at randy.efron@skylatus.com for bridge loan pricing optimization at Skylatus Property Capital.
