What is a good-news draw on a bridge loan and how is it structured?

How good-news draw triggers work in a bridge term sheet

A good-news draw (also called an earn-out or performance draw) is a future advance against the bridge commitment that releases when the asset achieves a specific operating milestone. The commitment is sized at closing for the maximum loan; only the initial advance funds at close. The earn-out funds later as performance lands.

Trigger types: (1) leasing-velocity milestones, physical occupancy of 85% / 90% / 92% on multifamily; same for office/retail (and absorption PACE on lease-up product); (2) NOI / DSCR milestones, trailing-3- or trailing-6-month NOI annualized covers debt service at a defined DSCR (1.10x to 1.30x); (3) capital-event milestones, completion of a major renovation phase or signing of an anchor lease.

Mechanics: the borrower delivers a certified rent roll, T-3 operating statements, and a rep that no defaults have occurred. The lender's asset manager reviews and either funds the draw or specifies the gating issue. Standard process is 30 to 45 days between request and funding.

Negotiation points at term sheet: the trigger threshold (lower thresholds advance cash sooner), the testing frequency (monthly vs. quarterly), the cure mechanic if a trigger is missed (re-test next period vs. forfeit), and the draw amount per milestone (split releases vs. full release). These directly affect IRR, funded earn-outs compound from the date they fund, not the closing date.