Mezzanine Loans
Mezzanine financing has become an important source of capital for commercial real estate acquisitions, development, and refinancing, now that traditional first-mortgage providers are more reluctant to finance projects at loan-to-value (LTV) ratios in excess of 65%. 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 can bridge that gap.
Mezzanine Loan Terms
- Loan Size: $100,000 to $3,000,000
- Combined LTV: Up to 85%
- Pricing: Floating rates and fees adjusted for risk and leverage. Yields achieved through combination of current pay accruals, front and backend fees, and participation interests.
- Term: Typically 3 years or less
- Property Types: Office, Multi-family, Industrial, Retail, Flex, Mixed Use, Self Storage
- Structure: Typically 2nd 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