Commercial Real Estate Mezzanine Financing
Mezzanine Financing and Preferred Equity for Commercial Property
Mezzanine financing is structured to increase leverage on commercial properties through inserting a layer of debt between the first mortgage loan and the owner’s equity. Mezzanine loans allow the lender to go higher on the capital stack than what traditional debt would normally allow. This makes them ideal for recapitalizations and refinancing when the current amount owed is higher than what can be obtained through conventional lenders.
Another use of mezzanine financing is offsetting investor equity which can often be more expensive than debt. This is particularly the case when building commercial property from the ground up. Specifically, preferred equity is available when the first lien holder won’t allow a secured second position and the mezzanine lender uses shares of the borrower/LLC as collateral instead of the underlying real estate itself.
Mezzanine Financing And Preferred Equity Terms
Minimum Loan: $2MM
Term: Coterminous with the first lien
Amortization: Interest only
Recourse: Non-recourse options available
Lenders Available for Permanent Financing
Country Club Syndicates
Private Debt Funds
Mezzanine Financing Cons
Debt can be expensive and drive up blended debt cost.
Mezzanine Financing Pros
Cheaper than equity.
Provides higher leverage