Mezzanine Loans

With traditional first-mortgage providers reluctant to finance projects at loan-to-value (LTV) ratios in excess of 65%, mezzanine financing has become an important source of capital for commercial real estate acquisitions and refinancing. One outcome of the credit crisis has been increased segmentation of the capital structure for specific real estate transactions.

The increased conservatism of lenders, partly in response to regulatory requirements and partly in response to the credit crisis, has created a gap between what lenders will provide and what borrowers want from debt sources. Mezzanine financing bridges that gap.

Mezzanine Loan Terms

• Loan size: $100,000 to $5 million
• Combined LTV: As much as 85%
• Pricing: Floating rates and fees adjusted for risk and leverage; yields achieved through a combination of current pay accruals, front- and back-end fees, and participation interests
• Term: Typically 3 years or less
• Property types: Office, multi-family, industrial, retail, flex, mixed use, self storage
• Structure: Typically second mortgage

Benefits of Mezzanine Loans

• Higher leverage
• With property values depressed and equity squeezed, mezzanine loans can be used to get a property refinanced and avoid a maturity default
• Fills void in capital structure caused by changes in underwriting standards by first-mortgage lenders