A 6-month extension at extension fees adds 25 to 75 bps to all-in cost. Buying a longer initial term protects IRR more than chasing the tightest spread .
How the math works on bridge cost vs. hold IRR
Hold-period sensitivity: each 6 months of unplanned hold (extension into a tighter market, lease-up slippage, take-out execution delay) typically costs 25 to 75 bps of IRR through additional interest plus extension fees plus rate-cap renewal cost. Sponsors who lose two extension periods on the same deal can lose 100+ bps of IRR before take-out.
Practical takeaway: a 25 bps wider initial coupon for a 30-month vs. 24-month bridge term often beats a tighter 24-month coupon that requires an extension. The bridge-to-take-out timing model walks the side-by-side. The cheapest bridge is the one that matures one quarter after take-out closes, not the one with the lowest initial spread.
Sources
- Secured Overnight Financing Rate (SOFR) · Federal Reserve Bank of New York · daily
- Treasury Constant Maturity Series (DGS5, DGS10) · Federal Reserve Bank of St. Louis (FRED) · weekly
- Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations · Mortgage Bankers Association · 2026-Q1