Real Estate Ventures: Bridge Equity
Real Estate attorneys Bill Jackson, Grace Winters and Anna Ayar and Tax attorney Christopher Marotta co-authored an article for ALI CLE's The Practical Real Estate Lawyer breaking down the role of bridge funding in joint venture real estate acquisitions. As the authors explain, typically these transactions are funded by a combination of third-party debt financing and equity contributions. If the third-party debt is not ready to close in time, investors must seek alternatives to plug the hole that would otherwise be filled by the third-party financing – which is where bridge funding comes into play. To "bridge the gap," parties often turn to a bridge loan made by the investor or an affiliate to the joint venture, or bridge equity contributed by the investor to the joint venture. This article provides a series of factors to evaluate when making this decision, including the identity of the lender, type of collateral and tax implications. It also discusses how to calculate the rate of return and other costs to the venture.