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Mezzanine, equity, preferred equity: these are all forms of Junior Loans. These loans sit on top of the senior loan and may or may not be secured by the property. Many are secured by partnership (ownership) interests only. Borrowers and lenders alike, call these junior loans by all sorts of names and leverage can vary widely. Typically, mezzanine loans increase leverage to about 85% of value or 10% more than the senior loan.
True Mezzanine Loans
can be of a fixed or floating rate and run from pricing
in the 7% to 14% range depending on the property type,
leverage and debt coverage through the mezzanine loan.
Typically, mezzanine lenders want at least a 1.15X
coverage through their mezzanine loan.
Preferred Equity
loans for the most part are expensive and typically
sit on top of senior loans or can sit on top of mezzanine
loans. Preferred equity is usually used in the case
where property value will increase over the loan term.
Leverage with a preferred equity loan can be as high
as 100% of project cost and 85% of terminal property
value. Examples of situations needing preferred equity
would be new construction where the developer does
not want to put much or any cash in the transaction.
Other situations would be the redevelopment of underperforming
real estate or other situations where significant
value will be created in a 12-36 month time period.
Pricing on preferred equity loans ranges from 12%
to 40% or higher. Some preferred equity lenders ask
for a small interest rate and then a percentage of
the project profits acting more like a joint venture
partner (without control).
Equity and Joint Venture situations typically
come from private sources and involve investments
in projects by non-institutional lenders. These investments
typically mirror Preferred Equity in leverage but
usually involve other benefits to the developer including
bringing a strong guarantor or development experience
in addition to funds. Pricing on these investments
typically is a sharing of project profit.
To get a better idea of what is available in the Junior Financing market, please use the text box below to explain what you seek. Please include your contact information including an email address and/or phone number. You will be contacted with more information once your request has been reviewed.
TEXT BOX INSTRUCTIONS - Please explain loan amount request, loan term request, current property condition and reasons for junior loan request. Helpful information also includes current property net operating income, major tenants and an explanation of the business plan for the loan term. Information on the proposed senior loan would also be helpful.
Your message will be emailed to Tim Radomski of BridgePointe Advisors.
* - Required
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