Every term sheet you’ve seen in the last six months says something like “SOFR + 475, 1.5 pts, 18-month term.” Lenders quote it that way because it looks like a 9-something rate, and a 9-something rate is psychologically manageable. What they are not quoting is your cost of capital. Those are different numbers, and on a $5 million bridge the difference is roughly 215 basis points of annualized drag you didn’t model.
This article builds the formula from the ground up, using a single representative $5M acquisition-plus-rehab bridge in a secondary Sunbelt MSA — think Greenville, SC or Huntsville, AL vintage 2026 — against a debt fund archetype in the size range of mid-market CRE CLO shops that warehouse through a regional bank line.
What the Term Sheet Actually Says (And What It Omits)
As of mid-May 2026, 30-day SOFR is printing in the 4.30–4.40% range, down roughly 85 bps from the late-2024 peak after two Fed cuts but stickier than the forward curve implied twelve months ago. A spread of 475 bps on a value-add bridge puts your note rate at approximately 9.10–9.15%, floating.
That number appears on page one of the term sheet. Here is what does not appear on page one:
- Origination fee: 1.5% of loan amount, paid at close
- Exit fee: 0.50% of loan amount, paid at payoff
- Unused line fee: 0.25% per annum on undrawn rehab proceeds
- Extension fee: 0.50% per six-month extension (two available)
- Default spread: +300 bps over note rate upon a trigger event
- Draw administration: $500–$1,500 per draw, plus third-party inspection fee ($750–$1,200) — every draw
None of these appear in the headline rate. All of them affect your actual annualized cost of capital.
Building the All-In APR: A $5M Case
Let’s be precise. The loan structure:
- Loan amount: $5,000,000
- LTC: 78% (purchase + rehab budget)
- Initial advance: $3,500,000 at close (70% of purchase)
- Rehab holdback: $1,500,000, drawn over 14 months on a 7-draw schedule
- Term: 18 months
- Note rate: SOFR + 475, assume SOFR holds at 4.35% → 9.10% floating
- Origination: 1.5% ($75,000)
- Exit fee: 0.50% ($25,000)
- Unused line fee: 0.25%/yr on undrawn balance
Step 1: Baseline Interest Expense
On the initial $3.5M advance, 18 months of interest at 9.10%:
$3,500,000 × 9.10% × 1.5 = $478,500
The rehab holdback draws in on an S-curve. A reasonable approximation: average outstanding draw balance is 45% of the $1.5M holdback over the 14-month draw period, or $675,000. Interest on that tranche:
$675,000 × 9.10% × (14/12) = $71,925
Total interest expense (baseline): $550,425
Step 2: Origination Fee, Amortized
$75,000 paid at close, amortized over the 18-month hold. Annualized contribution to cost:
$75,000 / ($5,000,000 × 1.5) = 1.00% per annum equivalent
Step 3: Exit Fee
$25,000 at payoff. Annualized against the full loan balance over 18 months:
$25,000 / ($5,000,000 × 1.5) = 0.33% per annum equivalent
Step 4: Unused Line Fee (Negative Carry on Undrawn Balance)
The undrawn rehab holdback averages $825,000 over the draw period (the other 55% of $1.5M not yet deployed). Unused line fee at 0.25%/yr over 14 months:
$825,000 × 0.25% × (14/12) = $2,406
This is a small number but not zero, and it’s a real cash cost.
Step 5: Draw Administration
Seven draws, each with a $1,000 lender admin fee and a $900 third-party inspection. Seven draws × $1,900 = $13,300. Annualized:
$13,300 / ($5,000,000 × 1.5) = 0.18% per annum equivalent
The Summary Table
| Cost Component | Total $ | Ann. % Equivalent |
|---|---|---|
| Base interest (note rate 9.10%) | $550,425 | 9.10% |
| Origination fee (1.5 pts) | $75,000 | 1.00% |
| Exit fee (0.50%) | $25,000 | 0.33% |
| Unused line fee | $2,406 | 0.03% |
| Draw admin (7 draws × $1,900) | $13,300 | 0.18% |
| All-in total | $666,131 | ~10.64% |
All-in APR on a $5M bridge quoted at SOFR+475: approximately 10.64%, before extensions and before any default-spread exposure. The delta from the headline rate is 154 basis points.
If this deal slips — lease-up takes longer, a contractor walks, the agency take-out appraisal comes in light — and you exercise one six-month extension at 0.50% ($25,000), the all-in moves to ~10.97%.
If SOFR moves 25 bps higher over the hold period, add another ~38 bps to the blended rate. Now you’re at 11.35% annualized, and that is before touching the default-spread mechanism.
The Formula
For operators who want to run this cleanly in a spreadsheet:
All-In APR = Note Rate + (Origination Points / Term in Years) + (Exit Fee % / Term in Years) + (Unused Fee % × Avg Undrawn % of Total Loan) + (Draw Admin Total / (Loan Amount × Term in Years))
This is a simple annual percentage approximation, not an IRR-weighted calculation. For a more precise figure — especially on a loan where the drawn balance ramps — model the actual monthly cash flows and solve for the discount rate that equates them to proceeds received. The simple approximation above overstates all-in APR slightly because it uses total loan balance as denominator even when the full balance isn’t outstanding. The error runs 15–25 bps depending on draw schedule shape, which is well within the noise of SOFR volatility.
The point is not computational precision. The point is that 154–215 bps of cost are invisible on the term sheet, and that gap is where lenders recover margin they couldn’t extract on the headline rate in a competitive deal environment.
What the Market Looks Like Right Now
MBA’s most recent commercial/multifamily originations data shows bridge volume recovering moderately from the 2023–2024 contraction, with debt funds still carrying the majority of transitional multifamily paper that agency and bank lenders won’t touch below stabilization. Fannie Mae’s Q1 2026 multifamily commentary notes that agency take-out execution continues to require demonstrated 90-day occupancy at 90%+ before DUS lenders will quote — which means your bridge hold is almost never 18 months in practice; the median is closer to 22–24 months on deals with meaningful rehab scope.
That matters enormously for the all-in APR calculation. An 18-month loan that actually runs 22 months (one extension exercised, two months of rate lock lag before agency close) has its fee drag amortized over 1.83 years instead of 1.5 years — which compresses the annualized fee cost by about 18% — but simultaneously increases total interest paid on the outstanding balance. The net effect is roughly a wash on APR but a real increase in total interest dollars out of pocket.
Trepp’s year-end 2025 analysis of the CRE CLO market flagged that approximately 28% of CRE CLO bridge collateral had been modified or extended at least once, with extension fees providing a meaningful but underreported revenue line for CLO issuers. When your lender is a mid-market debt fund warehousing through a CLO, the extension fee isn’t a penalty — it’s a recurring revenue expectation built into the fund’s base case.
Three Places Operators Lose Basis Points They Don’t See
1. Prepayment structure. A 2-1-1 prepay on an 18-month bridge means you owe 2% if you pay off in month one through six. If your agency take-out executes at month 16 and you’re inside the 1% window, fine. If your Fannie take-out closes at month 7 — not unheard of on a light rehab — you owe 1% on $5M, or $50,000. Add that to the all-in and you’re looking at another 33 bps annualized on a 12-month effective hold.
2. Default-trigger interest. Most bridge loan docs define “Event of Default” broadly enough to include mechanical covenant breaches — missing a financial reporting deadline, a guarantor net worth certification that slips. The default spread of +300 bps is not hypothetical. It’s a negotiated term and operators routinely accept it without modeling the scenario where it triggers for 60–90 days while a workout is negotiated. Sixty days of default-rate interest on $5M at 12.10% instead of 9.10% = $25,000 incremental cost.
3. Recourse carve-out exposure. Not a direct APR cost, but a real economic exposure that lives in the same loan document as your rate. “Springing full recourse” on a missed extension deadline or an SPE violation converts your non-recourse loan to a full personal guaranty. That’s not 50 bps — that’s potentially the whole $5M landing on your balance sheet. Model it.
The Number to Put in Your Model
If a lender quotes you SOFR+475 with 1.5 points and a 0.5% exit on an 18-month value-add bridge, your working assumption before you run your own numbers should be 10.5–11.5% all-in APR, depending on draw schedule shape and whether you extend. That’s the honest underwriting input.
The gap between 9.15% and 10.64% is not rounding error. On $5M over 18 months, it’s roughly $112,000 of cash cost the headline rate conceals. Whether the deal still works at 10.64% is a question only your proforma can answer — but you need the right number in the denominator before you can ask it.