Bridge & Mezzanine Markets Steady Amid Rate Volatility

By Majid Radaei, RadCRE · 2026-04-18 · Market Updates

Despite SOFR volatility, bridge and mezzanine lending markets maintain liquidity, albeit with higher pricing. Average bridge loan spreads are SOFR + 450-600 bps.

Bridge and Mezzanine Lending: Navigating Rate Volatility and Shifting Risk Appetites

The commercial real estate financing landscape continues to evolve in Q2 2026, with bridge and mezzanine lending markets demonstrating resilience alongside persistent caution. While the Federal Reserve's stance on interest rates remains a dominant factor, recent stability in benchmark rates, such as SOFR hovering around 4.31%, has brought some clarity. However, lenders are maintaining disciplined underwriting, reflecting the lessons learned from recent market cycles.

Increased Spreads and Equity Requirements Define Bridge Lending

Bridge lending, vital for value-add acquisitions, recapitalizations, and repositioning plays, has seen spreads normalize at a higher level than pre-2022. Current bridge loan products for transitional assets typically price in the range of SOFR + 300-600 basis points, depending on asset class, leverage, and sponsor strength. Lenders like Starwood Capital Group and Brookfield Asset Management continue to deploy capital in this space, often focusing on well-located multifamily and hospitality assets with clear business plans. Debt yields for bridge loans on certain asset types, particularly office, have tightened considerably, requiring higher in-place cash flow or more robust sponsor guarantees. Equity contributions for bridge deals are frequently exceeding 40% of the capital stack, reflecting a more conservative loan-to-value (LTV) approach from senior lenders.

Mezzanine Funding Fills Capital Gaps in a High-Rate Environment

Mezzanine financing and preferred equity continue to play a crucial role in bridging the gap between senior debt and sponsor equity, especially given the increased equity requirements from senior lenders. Mezzanine providers, including institutional funds and private credit firms, are commanding higher returns, generally in the 12-18% range, reflecting the greater risk profile. Recent deals, such as a reported $75 million mezzanine tranche for a retail portfolio recapitalization by a major private equity firm, highlight the continued demand for this capital. These structures are often preferred by sponsors looking to enhance returns on their equity or to avoid bringing in a new joint venture partner. The negotiation focus remains on robust intercreditor agreements and clear exit strategies, with preferred equity being favored in situations where sponsors want to retain greater control.

Lender Focus: Hospitality and Select Multifamily Outperform

Lenders active in bridge and mezzanine markets are demonstrating a clear preference for certain asset classes. Hospitality, particularly select-service hotels in growing markets, continues to attract capital, driven by strong RevPAR growth post-pandemic. According to STR data, U.S. hotel RevPAR growth year-over-year has consistently outpaced inflation in recent months. Multifamily, particularly workforce housing and BTR (Build-to-Rent) developments, also remains a favored sector, supported by strong fundamentals though rent growth has moderated in some markets. Conversely, office assets continue to face scrutiny, with lending largely confined to prime, well-leased properties in gateway cities, or deals involving significant equity and clear turnaround plans. Retail, specifically high-performing, experience-based centers, has also seen a resurgence in interest from private debt funds.

RadCRE Perspective

"The chatter in the market often focuses on distress, but what we're seeing on the ground is a sophisticated and highly selective capital environment," notes Majid Radaei, Founder of RAD Commercial Realty. "For our clients, particularly in the hotel investment sales space, navigating bridge and mezzanine options is paramount. While SOFR has stabilized, the 'all-in' cost of capital is materially higher than two years ago. We're consistently structuring deals where bridge lenders are looking for an 18-24 month hold with clear stabilization metrics, and the spreads for a quality hospitality asset are typically in the SOFR + 350-450 basis point range, alongside at least a 35% equity contribution.

The real art comes in understanding a lender's specific appetite for risk versus return. For instance, an agency lender for a stabilized multifamily property might offer competitive rates around SOFR + 150-200 bps, but if it's a transitional asset, that bridge capital is crucial. We're also seeing an increase in creative preferred equity structures replacing mezzanine debt in certain scenarios, especially when sponsors want that flexibility for future value creation. Our job is to pinpoint which capital source aligns best with the asset's business plan and the sponsor's objectives, factoring in everything from loan covenants to prepayment penalties. It's not just about the lowest rate, but the most optimal capital stack for execution and ultimate disposition strategy."

As the market continues to recalibrate, RadCRE remains at the forefront, leveraging its expertise in CRE financing to structure robust capital solutions across various asset classes, from hotel investments to value-add multifamily acquisitions.

Tags: commercial real estate financing, bridge lending, mezzanine financing, hotel investment sales, CRE capital markets, SOFR, preferred equity, RadCRE

Sources: STR, Commercial Observer, GlobeSt, CoStar, Mortgage Bankers Association (MBA)