Mezzanine Loans
In today’s market, many senior debt providers have reduced their advance rates to the point where borrowers need to supplement their own equity investments to fully fund their acquisitions and/or development projects. Borrowers can obtain mezzanine funding, even when their senior debt lender (e.g., CMBS or conduit-type loans) precludes borrowers from pledging their property for subordinate financing.
The terms below outline the typical requirements from mezzanine lenders in today’s market. These 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, redevelopment 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 costs, legal, and closing costs. The deposit will vary depending on the lender and/or the property or project to be financed. |
| 17. | Closing: | 1 to 4 weeks after loan approval and lender’s receipt of deposit |
| 18. | Third Party Reports: | MAI appraisal, Phase 1 environmental, feasibility, and any other reports 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.
Whitepaper on Raising Preferred Equity
Published: September 2022
Updated: October 2024
This white paper guides real estate investors on using preferred equity, mezzanine debt, co-GP capital, and stretch loans to increase leverage and returns. It covers diverse applications and the benefits of working with NetLeaseX Capital.
Read Whitepaper
Strategize with Preferred Equity
The Scotsman Guide | December 2018
This article provides an overview of how preferred equity fits into the capital stack and explores key terms that can be negotiated between sponsors and investors to optimize the structure of these investments.
Read Article | Download Reprint
The Power of Stretch Loans for Family Office Investors
This article explores how commercial real estate investors can secure custom stretch loans from high net worth and family office investors, combining senior debt and preferred equity features to obtain high-leverage, short-term bridge financing with favorable pay rates.
Famcap.com | May 2024
Read Article | Download Reprint
Throw Out A Lifeline
The Scotsman Guide | July 2020
This featured article examines how commercial real estate investors can raise rescue financing to cover losses and mortgage payments during Covid-19, mitigating personal guarantee liability risks associated with potential foreclosures and fire sales.
Read Article | Download Reprint
Ride To The Rescue
The Scotsman Guide | August 2020
Building on "Throw Out A Lifeline," this article explores how rescue financing acts as temporary bridge equity for commercial real estate investors, to be repaid upon market normalization, and discusses various debt and equity structuring options.
Read Article | Download Reprint
NetLeaseX Capital Offers Family Offices Direct Access to Rescue Financing Investments in Real Estate
Famcap.com | October 2023
This article discusses how family offices and other sophisticated real estate investors can access NetLeaseX's platform to freely review pre-screened, "investment-ready" transactions, including rescue financing, preferred equity and co-GP investment opportunities.
Read Article | Download Reprint