Over the past 12 months, the most common funding problem is the lack of financing options at the early stages of a real estate project: land acquisition, initial development, real estate purchase before the renovation, equity cash out towards new development, etc.
GMG receives high-value financing requests in almost all major countries, and it’s been very clear that traditional banks are less willing to take on the risk of financing the early stages of a real estate development or project. There has never been a greater need for non-bank alternatives than now.
Many of our High-net-worth clients have relied on the ‘long relationship’ with their banks (Implicit Put option) to be their lender of last resort, and when they are not, there is a scramble for financing options in a short period of time, which we see now. A separate issue is that banks, in general, may require recapitalization from losses due to Covid-19 and are looking to preserve capital.
Bridge Lending (the B part of BREFI).
As many of you know, one of the advantages of bridge loans is that they allow the borrower to secure opportunities that you would otherwise miss. Another advantage is bridge loans allow for flexible payment terms depending on the loan agreements. You can choose to start paying off the loan before or after securing long-term financing.
Also, qualifying and getting approved for a bridge loan takes less time than a traditional loan, giving the borrower the convenience of quickly owning the asset and begin getting the project off the ground with the intention of replacing the bridge loan with a more permanent construction loan, as an example.
GMG BREFI (short for Bridge + Refi).
We created the BREFI to combine 2 types of mortgage origination effort into one single offering to help clients with their initial bridge and onto the next stage of funding, usually a construction or development loan.
For example, in some cases, the initial bridge loan is used to purchase the property or land and prepare it to be “Shovel-ready.” That is land or structure that has plans, zoning, and issued permits in place. Having these ready allows for construction to begin immediately after closing.
A major difference between these two is that new construction loans fund the construction of a new structure, whereas bridge loans allow investors to purchase land or property but typically do not fund any construction costs. A GMG BREFI combines them both into one service offering.
Investors who obtain a bridge loan will usually begin construction after they have refinanced out into their long-term loan.
Typical Bridge Loan
- Used to purchase “shovel-ready” land or land with an existing structure for a quick flip
- Used to pay off the existing loan by refinancing into another loan
- Not normally used to fund construction
Typical Construction Loan
- Used purchase "shovel-ready" land or land with an existing structure to tear down and rebuild
- Used to pay off the loan upon selling the property
- Always used to fund construction
Our team uses GMG BREFI by finding lenders that will take both portions of the funding stack, Bridge + Construction.
Some common uses of GMG BREFI
Purchasing a plot of land to build a new development
Investors looking to purchase a plot of “shovel-ready” land would normally use a construction loan which is not available in this market environment. A BREFI will allow you to acquire the desired land and finance the new development on the property.
Purchasing an existing property (IE en bloc in Singapore) to tear down and build a new one
For clients planning to tear down and rebuild a structure on a piece of land, a BREFI can be used as a financing option.
Financing required to purchase land and begin construction immediately
Property developers who have the required documentation to begin construction on a piece of land can use the BREFI, where typical construction loans are not available with traditional banks. The hardest part of any new construction is getting the needed permits; once this is done, our lenders can disperse the funds in “construction draws” to start building.
We have many Case Studies for the GMG BREFI for transactions globally.
Please contact your GMG International Loan Specialist for more information: [email protected]