Mezzanine Loans Available
Mezzanine Loan debt is the modern-day equivalent of a second trust deed. There are ways to accomplish getting a Mezzanine Loan. Most commercial lenders will now allow a junior lien to be recorded against a property where they have a first trust deed. There are several reason for this, but the bottom line is that real estate investors would have needed a great deal of cash to get larger transaction done until the mezzanine lenders showed up. Here an example to spell this out:
A real estate investor has owned a large shopping center for 5 years and wants to sell it. When he bought it, he got a 75% LTV loan of $6 Million on his $8 Million purchase price using a Conduit* loan from a mortgage bank. Rates went down from the time he bought it, and it has appreciated to $16 Million in the same time, and his commercial loan balance is now $5.5 Million. Because this is a Conduit loan, our seller would face a prepayment penalty in the range of $600,000 to $1 Million! And since they don’t allow second trust deed on the property, the Buyer would have to come up with over $10.5 Million to buy it! Not.
Mezzanine mortgage lenders get around this problem by lending on collateral other than the property. Commercial loan Conduits require borrowers to create a special entity, usually a LLC, to own the property to protect them in the event the borrower files for bankruptcy. The Mezzanine mortgage lender uses the membership interests of the LLC as collateral for their loan instead of the property. So in our example, the Mezzanine lender steps up with a loan as large as $7.3 Million (this would bring the combined loans to 80% of the purchase price), depending upon the lender’s debt service requirements. Purchase accomplished!
Mezzanine lenders also play an important role in large construction loans. These types of commercial loans are not always readily available. The smallest Mezzanine loans tend to be in the $2 Million – $3 Million range. If you are in need of a Mezzanine Loan, give us a call to describe this type of loan to you more clearly and answer any questions you may have.
We thank PaperPlus.org for helping try to explain Mezzanine Debt Loans.
Another short definition for a Mezzanine Loan as follows, from Investopedia:
A hybrid of debt and equity financing that is typically used to finance the expansion of existing companies. Mezzanine financing is basically debt capital that gives the lender the rights to convert to an ownership or equity interest in the company if the loan is not paid back in time and in full. It is generally subordinated to debt provided by senior lenders such as banks and venture capital companies.
Since mezzanine financing is usually provided to the borrower very quickly with little due diligence on the part of the lender and little or no collateral on the part of the borrower, this type of financing is aggressively priced with the lender seeking a return in the 20-30% range.
Give Los Angeles Realty Loans a call to discuss your options.
Phone: 877-250-3030