How does a sponsor monetize an in-the-money rate cap on a CRE bridge loan?

Mechanics of monetizing positive cap value

An in-the-money cap, strike below current SOFR, pays the borrower the difference each month on the notional. When SOFR is 100 bps above strike on a $20M notional, the cap pays roughly $200K per year in monthly increments. The accumulated payments plus the remaining time-value of the cap give it positive mark-to-market value that the sponsor can monetize.

Hold to maturity: the simplest path. The cap continues paying monthly through loan maturity; the sponsor banks the cash flow against debt service. Best when the loan is on track to mature naturally and no refinance or sale is in the near term. No counterparty consent required, no transaction cost.

Sell to third party: the original counterparty (or a competing dealer) will quote a cash bid for the remaining cap based on then-current mark-to-market. The sponsor receives a lump-sum payment and the cap terminates. Most loan documents require lender consent for cap termination, review before initiating. Useful when the sponsor wants immediate cash for capital expenditures or to fund a refinance gap.

Assign to refi lender: when refinancing the loan, the existing in-the-money cap can be assigned to the new lender as protection on the new loan, with the assigned mark-to-market value credited against the cost of the new cap (or returned to the sponsor as cash at closing). Best mechanic when the existing cap term aligns reasonably with the new loan term and the new lender is willing to accept the assignment. Coordinate with the cap counterparty 4-6 weeks before refi closing.