I'm a firm believer that floating bridge debt (even with rate caps), should never be used on deals that are 90%+ occupied.

Bridge Debt is an ok tool for distressed deals that a local bank won't touch, but only with the right structure in place. If you have to go bridge debt on the rare occasion, be sure that the LTV remains low (65% or less), keep 12+ months of debt service liquid, have a frothy renovation budget, buy a 3-year in-the-money rate cap, have reserves for a future rate If it's 90% occupied, then use Fannie, Freddie, CMBS, or bank debt

If it's under 90%, try to get fixed-rate CMBS or bank debt. Local banks often have great debt tools. Sure you sign a personal guarantee, but we have found excellent 5-year fixed renovation loans with our banking partners.

If it's a screaming good deal and for some reason a bank won't finance it, then consider bridge debt with a rate cap, with low leverage (65% or less).

Stop using it for a bread-and-butter value add. If you're an investor, ask the sponsor why they're using bridge debt. Some sponsors use it on every deal because it's cheaper or provides them with flexibility. I call BS. I've run the analysis and a fixed-rate agency loan with a step-down pre-payment is still cheaper than a bridge loan if you hold for more than 2 years. Plus, the fixed provides you with way less risk.

Let me hear your thoughts. Why is it ok to use floating bridge debt on a 90% occupied value-add deal?