The purpose of mezzanine loans would be to fill new pit in the the capital heap anywhere between guarantee and you can elder obligations (i.e., mortgage debt). Maximum mortgage-to-worthy of (LTV) percentages getting commercial real estate mortgages have a tendency to include 55% so you’re able to 65%, meaning people need to find almost every other offer to cover thirty five% so you’re able to forty-five% of one’s cost. Of several customers desire fill the administrative centre gap that have mezzanine financial obligation instead of collateral since it fundamentally comes with a lowered cost of funding. Mezzanine loan providers have a tendency to allow maximum combined LTV percentages off 80% in order to 90%, leaving only ten% in order to 20% of your price to own collateral.
Mezzanine lending concerns alot more chance than elderly lending. In the example of a foreclosure and other percentage default, senior debt was paid off first, following mezzanine obligations, ultimately equity. Therefore, mezzanine obligations comes to increased danger of losings. Mezzanine lenders is actually compensated towards the most exposure that have advanced interest rates. Continue reading “The latest IRS’s Mezzanine Lending Suggestions to own REITs”
