Commercial Bridge Loan Appraisals in California: What Private Lenders Need From the Report

Bridge lending is a big part of what we do. PM Appraisal is on lender approved appraiser lists, including Val-Chris Investments, Inc., Stonecrest and East West Bank, and we have completed more than 2,500 appraisals for California Mortgage Association members. This guide covers what a bridge lender should expect from the report and how to keep the appraisal from holding up a closing.

What is a commercial bridge loan appraisal?

A bridge loan carries a property from one event to the next: a purchase that has to close before permanent financing is lined up, a payoff of a maturing loan, a lease-up, a renovation or a sale. The lender is lending against the real estate for a short period, so the appraisal answers two questions. What is the collateral worth today? And is the exit the borrower is describing realistic?

The appraisal is the same discipline as any commercial collateral appraisal. What changes is the emphasis. A bridge lender cares about the as-is value on the day the loan funds, about how quickly the property could be sold if the plan stalls, and, on a value-add loan, about what the property should be worth once the plan is done.

Which value does a bridge lender need: as-is, as-stabilized or as-complete?

• As-is market value. The value of the property in its current condition, with its current leases and occupancy, as of the inspection date. This is the value that secures the loan when it funds, and it is the one almost every private lender requires.
• Prospective as-stabilized value. For income property that is under-leased, what the property should be worth once it reaches a stable occupancy at market rents. Lenders use it to test the takeout or sale.
• Prospective as-complete value. When the loan funds renovation or construction, what the property should be worth once the work in the plans and budget is finished. Construction-heavy bridge loans raise their own rules, which we cover in our guide to as-complete appraisals and SB 978.

A prospective value rests on stated assumptions, such as the work being completed as described or the leasing happening at the rents projected. A good report spells those assumptions out so your credit committee can see exactly what the number depends on. Name the values your credit policy requires in the engagement. Adding a second value after the report is written costs days.

Why is the appraisal often the bottleneck on a bridge loan?

Bridge loans move fast, and appraisals are where many of them stall. The usual causes are not the analysis itself. They are logistics:

• The order sits in an appraisal management company queue before anyone qualified looks at it.
• Nobody can get the appraiser into the building, or the tenant contact does not call back.
• The rent roll, leases or operating statements arrive in pieces, a week after the inspection.
• The underwriter has a question about a comparable or a cap rate, and it takes days to get it to the person who wrote the report.

At PM Appraisal you call or text (805) 990-9700 and talk to the appraiser on your assignment. Scope, documents and timing get settled on the first call, and when your underwriter has a question later, it goes straight to the person who can answer it. That is the whole point of working with a boutique firm instead of a portal.

How fast can you get a bridge loan appraisal in California?

Rush commercial appraisals take 5 to 7 business days. Standard timing depends on the property and scope. Call (805) 990-9700 for a timeline on your assignment.

What keeps an assignment on schedule, rush or standard:

1. Engage early. Call when the term sheet is signed, not after the borrower’s deposit goes hard.
2. Give the closing date on the first call. Your appraiser plans the inspection and the write-up around it.
3. Line up access. A named contact who can open every unit, suite or building on the inspection day.
4. Send the documents together. One complete package beats a trickle of attachments.

We appraise in every California county, so a lender with a deal in San Diego this week and one in Sacramento or the Bay Area next week can use one firm for both.

What should a lender-ready bridge loan appraisal include?

Our reports are detailed narrative appraisals prepared under USPAP. For a bridge lender, the parts that matter most are:

• Clear identification of the client, intended use and the values developed, including the effective date of each value and any extraordinary assumptions or hypothetical conditions.
• Market and location analysis for the specific submarket, not boilerplate about the state.
• Highest and best use, because a bridge borrower’s plan and the property’s most likely use are not always the same thing.
• The sales comparison approach with comparables you can check, and adjustments that are explained.
• The income approach for income property: the rent roll tested against market rents, vacancy and expenses, and a supported capitalization rate or discount rate.
• The cost approach where it is meaningful, such as newer or special-use buildings.
• Exposure time. USPAP calls for an opinion of reasonable exposure time when the value is market value. For a short-term lender thinking about a sale if the plan stalls, it is worth reading closely.
• A reconciliation that explains why the final value lands where it does.

A thick report is not about page count. It is about showing the work, so your file holds up with investors, auditors and anyone who buys the note later.

Who should order the appraisal, the lender or the borrower?

Ask the lender before anyone orders. Under USPAP, the appraiser identifies the client and the intended users at the start of the assignment. Many private lenders require that the lender, not the borrower, is the named client, and a report written for someone else may not be usable for the loan. When we are engaged, we confirm on the first call who the client is and who else will rely on the report.

If the lender is a broker that will sell the note, or interests in it, to investors, California’s Business and Professions Code Section 10232.3 ties loan-to-value limits to the property’s “current market value.” Under the current text, the principal amount of the note or interest sold, together with the unpaid principal of senior liens, generally may not exceed 65 percent of the current market value of commercial and income-producing property (other property categories, such as income-producing farm land and unimproved land, have their own percentages). A broker may exceed those percentages only within further limits set in the same section and with a written statement of the reasons. How that section applies to a particular loan is a question for your attorney.

What should the borrower send the appraiser for a bridge loan?

• Property address, APN and a short description of the loan purpose
• The closing date and the values the lender requires
• Purchase contract and escrow instructions, for an acquisition
• Current rent roll, leases and any amendments or estoppels
• Trailing 12 months of operating statements and the current year budget
• The business plan: renovation scope, budget and schedule, and leasing assumptions for a value-add loan
• Recent capital improvements, permits and any known deferred maintenance
• Any prior appraisal, environmental report or property condition report the lender can share
• The inspection contact

Your appraiser will confirm the exact list on the first call. On a simple owner-user building it is shorter. On a multi-tenant center with a renovation plan it is longer.

What kinds of California property do we appraise for bridge loans?

All of them. Office, retail centers and single-tenant retail, industrial and warehouse, multifamily, mixed-use, gas stations, hotels and motels, land and development sites, vineyards and agricultural property, new construction at every stage, medical, residential care facilities, religious facilities and other special-use property. We do plenty of half-million-dollar properties, and large ones too, such as the 113-unit Holiday Inn Express near the gate of Yosemite, appraised for a California Mortgage Association member lender, and the Procore campus in Carpinteria. See the full list of property types and our statewide coverage.

Bridge loans are one example of the lending work we do. We also handle fix-and-flip and after-repair value appraisals, purchase and refinance loans and construction loans, and for the attorneys and CPAs who work with the same investors, estate, divorce, retroactive and litigation appraisals. Our opinions are independent. We never take an assignment that requires a predetermined value, and our fees are never tied to the result.

This article is general information, not legal advice. Talk to your attorney about how lending laws apply to your loans.

Keep reading

• Hard money and private lender appraisals
• Rush commercial appraisals in 5 to 7 business days
• As-complete appraisals for California construction loans (SB 978)
• How long does a commercial appraisal take in California?
• Fix-and-flip and after-repair value appraisals
• Commercial appraisal in San Diego

This article is general information, not legal or tax advice. Talk to your attorney or CPA about your situation.