An acquisition, development and construction loan is financing for the development of commercial real estate that is made available during a project’s construction phase, it allowing a developer to buy land, install the infrastructure and build improvements. An ADC loan does not finance the acquisition of completed commercial buildings and remains outstanding until it is paid in full, converted into permanent financing or sold.
ADC financing is commonly progress payment financing, where payments are made to the developer of property while it is being developed to cover the cost of materials and the asset’s construction. The principal amount borrowed is generally applied to the asset’s permanent financing.
Bridge financing is short-term financing with a bullet maturity that is used to pay off ADC loans and fill the interim until longer-term permanent financing can be obtained, it allowing newly constructed or acquired commercial properties to reach stabilization. Bridge financing is a junior mortgage and subordinate to permanent financing, which is the source of its repayment.
Bridge financing is contrasted with a construction-to-permanent loan. A construction-to-permanent loan is financing that is automatically converted into a fully amortizing permanent loan upon completion of construction – without gap financing.
Commercial real estate leasing commonly includes the progress payment financing of the construction or acquisition of income-producing real estate. Progress payment financing is funding of an property while it is being constructed to cover the development cost. The principal amount borrowed is generally applied to the asset’s permanent financing