STRUCTURED FINANCE

Many of these options bring certainty of execution, such as Mezzanine Financing and preferred equity. Mezzanine financing is structured to increase leverage on commercial properties. Mezzanine loans allow the lender to go higher on the capital stack than what traditional debt would normally allow. This makes them ideal for recapitalization and or refinancing when the current amount owed is higher than what can be obtained through conventional lenders and traditional financing.

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 will not allow a secured second position and the Jr. lender uses shares of the borrower/LLC as collateral instead of the underlying real estate itself. This makes it a very expensive proposition for which an additional capital may be necessary to complete a project. Often, developers may run into negative carry which the cost of financing exceeds the earnings and loan principle. Mezzanine financing is a solid solution whereby a developer will avoid expensive loans or having to go back to partners and ask for additional capital for short falls. Key component of mezzanine financing is that the project must be stabilized.