What Are Common CRE Bridge Loan Terms?

The right loan term is not a fixed number, it is a function of how long the underlying business plan realistically takes, plus a cushion for delay. A light interior renovation with a 12-month lease-up might justify an 18-month initial term, while a ground-up construction project with permitting risk often needs 24 to 36 months before the lender's clock even starts counting toward stabilization. Sponsors who negotiate a term matched only to the optimistic case, with no allowance for permitting delay, a slow lease-up quarter, or a construction cost overrun, are setting up a maturity problem before the loan even funds.

Lenders think about this the same way from the other side. A shorter initial term with extension options lets the lender re-underwrite the deal periodically rather than committing to a full multi-year exposure at closing, which is one reason 12-month initial terms with 6-month extensions are more common than a single 24-month term with no checkpoints. The checkpoints give the lender leverage to adjust pricing or require paydown if the plan is behind schedule.

An extension option is rarely a simple right to add time. Loan documents typically list specific conditions that must be satisfied before the borrower can exercise it: no event of default, a minimum DSCR or debt yield tested against trailing income, a maximum LTV based on a current appraisal, and payment of an extension fee, commonly 0.25% to 0.50% of the outstanding balance. Some agreements also require the borrower to purchase a new interest rate cap for the extension period if the loan is floating rate, which adds a cost the sponsor should budget for separately from the extension fee itself.

The practical effect is that an extension option only helps if the property is actually on track. A borrower six months behind on lease-up, with occupancy at 70% against an 85% extension test, cannot simply invoke the option, they need the lender's consent through a waiver or amendment, which is a different and less certain negotiation than exercising a contractual right.

Term length varies meaningfully by loan type, and comparing them helps a sponsor calibrate expectations. Bridge loans typically run 12 to 24 months with extension options pushing total exposure to 24 to 36 months. Construction loans often run 24 to 36 months to cover both the build period and initial lease-up. Mezzanine loans usually match the term of the senior loan they sit behind, since the two are typically repaid together at refinance or sale. Permanent loans run far longer, 5 to 30 years, with the loan amount and rate reflecting that extended commitment.

A loan reaching maturity without a completed refinance or sale does not simply continue on the old terms. Most loan agreements specify a default interest rate, often 4 to 5 percentage points above the note rate, that applies automatically once the maturity date passes without repayment. Some agreements also permit the lender to sweep all property cash flow rather than distribute it, and late fees or default-related legal costs typically become due as well. None of this is punitive by design so much as a reflection of the lender no longer having agreed-upon terms for the exposure.

If extension options are exhausted or the borrower fails to meet their conditions, the sponsor is negotiating from a weaker position: a forbearance agreement, a short-term extension at a higher rate, or a forced sale under time pressure. This is why sponsors track their extension tests months in advance rather than waiting for the maturity date to approach.

As an illustration, a sponsor holds an $8,000,000 bridge loan at 9% with an initial 12-month term and a 6-month extension option conditioned on 80% occupancy. At month 11, the property is 74% occupied, short of the test. Without the extension, the loan matures and, absent repayment, moves to a default rate of 13%. On the same $8,000,000 balance, that is a jump from about $60,000 to about $86,700 in monthly interest, an increase of roughly $26,700 per month, or over $160,000 across a six-month gap while the sponsor arranges a refinance or negotiates a forbearance.

This illustration is why sponsors negotiating extension tests push for thresholds they can realistically reach given normal leasing variance, rather than accepting the lender's first proposed number, and why many build a lease-up buffer of one or two extra months into their own internal timeline.

A term sheet's headline duration tells only part of the story. Before signing, a sponsor should confirm the mechanics that actually determine how much time and flexibility the loan provides in practice.