Mezzanine Loans
In today’s market, many senior debt providers have reduced their advance rates to the point where borrowers will need to supplement their own equity investments to fully fund their acquisitions and/or development projects. To do so, borrowers can obtain mezzanine funding, even though their senior debt lender (e.g. CMBS or conduit-type loans) preclude borrowers from pledging their property for subordinate financing.
The information below provides a general outline of the terms sought by mezzanine lenders in today’s market. The below terms may vary depending on the financial strength and experience of the borrower and the type of property being financed.
| 1. | Structure: | Pledge of 100% of the partnership, membership interest or common stock in the borrower, or the entities which own the borrower |
|---|---|---|
| 2. | Product Types: | All major commercial uses including multifamily, office, retail and industrial and possibly other product types based on a particular lender’s loan criteria |
| 3. | Market: | Nationwide |
| 4. | Loan Size: | $1 million minimum; no maximum loan amount |
| 5. | Loan Term: | Up to 3 years, with options for additional 1 year extensions |
| 6. | Maximum LTV: | Up to 85% of the “as-is” appraised value or purchase price, whichever is less |
| 7. | Interest Rate: | Approximately 7% – 12% per annum, depending on project leverage, debt service coverage, evaluation of the underlying real estate and strength and experience of the sponsorship |
| 8. | Debt Service Coverage: | 1.0x to 1.3x depending on property type |
| 9. | Amortization: | Interest only |
| 10. | Prepayment: | Negotiable lockout period, typically no less than 6 months |
| 11. | Origination Fees: | Typically, 1 to 2% of the loan amount |
| 12. | Exit Fees: | Negotiable |
| 13. | Reserves: | Real estate taxes, hazard insurance, replacement reserves, redevelopments costs (if any) and mortgage interest (as may be required) |
| 14. | Ownership: | Single asset, bankruptcy-remote entity |
| 15. | Recourse: | Depends on the lender. If the loan is non-recourse, the lender will typically require the borrower to provide limited recourse for “bad boy” or standard carve-outs, including fraud, misapplication of funds, waste, property taxes, and environmental issues. |
| 16. | Deposit: | Depends on the lender with such amount payable to the lender upon acceptance of the their term sheet for site inspection, third party posts, legal and closings costs. The deposit will vary depending on the lender and/or the property or project to be financed. |
| 17. | Closing: | 1 to 4 weeks from the date after loan approval and lender’s receipt of deposit |
| 18. | Third Party Reports: | MAI appraisal, Phase 1 environmental, feasibility and any other reports as as required by the lender |
If you would like to discuss your project and funding requirements, please call us at 513-621-1031 or send us an e-mail summarizing your project.
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