Borrower Questions

What is a gap or bridge loan?

In the real estate context, a gap loan, or bridge loan, is a non-traditional loan, secured by the property and not by the your income potential or credit. Interest rates are typically higher than traditional bank loans.

Bridge loans are usually short in duration and effectively create a financing bridge from the start to the point where banks are interested. An example of a situation requiring a bridge loan is a construction project. Say you are an owner of a large parcel of land in Costa Rica and you want to take advantage of the tourism and construction boom by building homes for sale. Experts would say that the parcel of land would have a high Latent Value.

Your bank wants to provide you with a long-term mortgage at normal rates once the construction is complete, but is not interested in the actual construction financing. So a construction loan is required from a separate lender (or in the case of Gap Investors, a syndicate of lenders) to finance the construction period. In essence, the construction loan is a bridge loan, providing you a bridge to the long term mortgage with market interest rates.

What is a syndicated loan?

A syndicated loan is a form of loan that a group of lenders collectively extend to a single borrower. The group of lenders is known as a syndicate.

Why a syndicated loan?

A syndicated loan allows us to provide you with a loan for your project that is funded from multiple lenders through a single contract. This way you can quickly get the funds you need to get your project started.

What are the loan requirements?

First of all you need equity -- your borrowing power will depend primarily on the equity that you have. Our lenders will also need to be fully assured as to the feasibility of the project you have in mind. Before we present a project to our lenders you will need plans and the necessary permits in place.

How long can I borrow the money for?

Generally the loan terms are for 6 to 24 months. However, you may want to introduce pre-sales to prospective buyers, so the principal on the loan could be paid faster without penalty, reducing the total interest you pay on the loan.

What happens to my property title during the loan term?

Gap Investors uses a "fideicomiso de guarantía" (guarantee in trust), whereby the property title is conditionally transferred to a registered trustee. This is the same method used by regular commercial banks in Costa Rica to provide mortgages.

What happens if I encounter problems in paying interest or principal on the loan on time?

In that eventuality, Gap will first re-appraise your project in its current state and assist with additional financing if it is feasible. However, like all lenders, when all other options are exhausted, Gap will have no choice but to foreclose on the property and the assets will be transferred to the holding corporation that is owned by the investors.

What is the minimum and maximum that I can borrow?

The minimum loan size with Gap Investors is US $100,000. The maximum loan is in the millions, so please contact us and we can discuss the details if it is a large-scale project.

What kind of interest rate should I expect to pay?

Typical interest rates charged to borrowers will be higher than a regular bank loan in Costa Rica, although every project is different depending on the risk, amount of collateral and duration.

Why are your interest rates higher?

Bridge loans are typically higher because they are not conventional bank loans. These interim loans are a means to an end, and involve interest-only payments with the goal of refinancing with the bank once construction is underway.

In reality, this is the cheapest and most lucrative way (in terms of final profit to you) to get your development project off the ground. The alternative would be to seek an investor who will most likely assume a majority stake in the project in return for investment.

Why can't I just get a bank loan for my project?

We urge you to first apply with Costa Rican banks for a traditional mortgage for your development project, to discover their requirements. You'll find that banks are highly risk-averse and have certain collateral and income requirements for their loans. Someone going to the bank looking for a $10 million loan will have to have more than that in property, and possibly over a $1 million in yearly income to service the loan. That leaves gap financing as an attractive choice, to get your project to the point where you can come back to the bank and get a mortgage.

How do I pay the initial payments on the loan?

Most loans will involve a cash reserve -- in other words, the first year's interest payments are held, allowing you to concentrate fully on development.

This is what makes Gap Investors the best choice for you -- if you own a parcel of land and want to take advantage of the great development potential, but don't have liquidity or the kind of income required to get a bank loan for a development project.

It looks like you are brokering multiple projects. If one project fails does it affect the other loans?

Absolutely not. Each loan is brokered, created and managed independently from every other. Unlike a general investment fund, the funds provided for the loan are used exclusively for that loan, through a holding company created and managed exclusively for the purpose of representing the lenders on a specific loan.

Hypothetically speaking, what would happen to the funds if Gap were to disappear?

Absolutely nothing would happen to the funds. The loans that Gap Investors Ltda. brokers are directly between the borrower and the lenders, through a local holding company that is owned by the lenders. A neutral third-party trustee, registered with the Central Bank of Costa Rica, holds the equity in trust to the lenders for the duration of the loan. During the development of the project funds for the loan will be in a bank account in the name of the holding company, so you can rest assured that your funds are secure, with or without us.

What was the largest project you've been involved with?

We were involved with the Playa del Sol development on the Caribbean coast of Costa Rica, which is an 1,100-acre property with 3 miles of titled beachfront. The plan calls for 500 residential lots in Phase 1, with an additional 1,500 lots in later phases, along with hotels, golf course, and commercial units.

The entire project was purchased by ECI Ltd., a group of investors from the United States, which is going ahead with the development under the name Gran Caribbean.

What is Latent Value?

Latent value is the value possessed by a property which has potential for development because it is currently not employed at its highest and best use. One example is a large piece of land that was purchased long ago when it was rural and now finds itself in the middle of a fast-growing suburban community; this land is better used as a suburban housing development. Another example is an old home in a large lot purchased in the city long ago, a city which has since grown into a metropolis with skyscrapers; this land is better used as a multi-floor apartment building with commercial units on the first floor.

What is in it for Gap Investors Ltda?

As a mortgage broker, we charge a percentage of the loan in the form of a closing cost upon the signing of the mortgage contract. Just like regular bank mortgages, this closing cost is taken out of the funds disbursed to the borrower. Our closing costs are higher than your typical bank mortgage, because they cover the costs involved in the trust guaranty, escrow fees, borrower broker fees, lender broker fees, legal costs, formation and full management of the loan holding company, loan repayment collections, accounting, reporting -- as well as our profit as mortgage brokers.

How do I get started?

You can get started by filling out our contact form with a summary of your project.