If a commercial real estate borrower seeks out a mezzanine loan, but does not want to pay an extremely high interest rate, the lender may agree to reduce the interest rate in exchange for a piece of equity in the project, referred to as an equity kicker.
In commercial real estate, an intercreditor agreement is an agreement between two lenders that stipulates the rights and responsibilities of each party. Intercreditor agreements are most commonly used when mezzanine debt is layered on top of a senior commercial real estate loan. Typically, the agreement creates a variety of safeguards that protect that senior lender’s interest in the property should the borrower default on their loan.
Mezzanine Financing in commercial real estate authorizes a lender to convert a debt into equity in the event that a borrower defaults. For example, if the borrower fails to pay the debt in a timely manner, the lender has the right to take action by taking a portion of the investment property and then selling it to pay off that debt.