|Financing Trends: Mezzanine Financing More Popular
Among Lenders And Borrowers
Commercial Mortgage Insight
Reprinted with permission from the December 2000 Issue
Daniel Edrei, director for Meecorp Capital Markets of Fort Lee, N.J., agrees that the financing structure is more in demand. It can be more profitable for both the borrower and the lender, but if it’s not done properly, it can be very chaotic,” ha says. Edrei points out that the structure:
- Allows the borrower to highly leverage the property,
- Frees up cash flow to complete renovations, or
- Makes the purchase possible in the first place.
Financing for hotels has especially become so restrictive, many borrowers are unable to obtain the funds they want without using mezzanine financing, Edrei observes. Although mezzanine financing is expensive for borrowers, the blended rate may be only about 1% higher than the senior loan.
Meecorp can finance construction, but generally requires strong existing cash flow, he notes. “Everything’s got to look pretty.” Although the deal has to “make sense,” the company is not locked into any formula. Flexibility is the name of the game. For instance, the company can create a mezzanine credit line that provides the borrower additional funds as it meets lease-up goals. “It’s similar to an earn out, but it can take a lot more into consideration,” he explains.
Typically, it provides up to half the remaining equity. Amounts can go down the $1 million if it’s funding only the “mez piece,” but it can go down to $200,000 or $300,000 if it’s also funding the permanent loan.
The company looks less at the borrowing entity and more “at the merit of the property,” including vacancies, market strengths, cash flow and signed leases. It sells the permanent financing for securitization and keeps mezzanine as well as bridge loans in portfolio.
Daniel Edrei is a Director of the Principals Group at MEECORP CAPITAL MARKETS,
a New Jersey-based commercial real estate lender providing fast, creative funding solutions nationwide. Meecorp specializes in non-conforming transactions such as Bridge loans, Mezzanine/ Equity loans and Sale-Leasebacks (including land and construction), ranging from $1Million to $100Million and above. You can reach Daniel via email at Daniel_Edrei@Meecorp.com or by calling 201-944-9330 ext. 103.