Mezzanine Financing

It is not uncommon for commercial real estate owners to structure a financing transaction with multiple layers of capital, each with a different risk-reward calculation. The professionals at Remington Financial Group have extensive expertise in all aspects of commercial financing, having handled over the years billions of dollars in corporate and real estate transactions involving all types of property across the capital stack.

For those commercial real estate and other businesses looking to add debt rather than equity when senior debt is maxed out near 70% LTV, borrowers may want to consider mezzanine financing. One of the uses of mezzanine debt is to add as much leverage as possible by increasing LTV to about 75-90%. It is also common for real estate developers to secure mezzanine loans when supplemental financing is needed.

By definition, mezzanine financing fills the gap between equity and senior debt in the capital stack and is subordinated to the senior. Sources of mezzanine debt include pension funds, insurance companies, other financial institutions, state agencies, and mezzanine debt funds.

Because mezzanine debt is considered riskier than senior debt with respect to collateral and cash flow rights, lenders of mezzanine loans tend to make their lending decisions based on the predictability of cash flow in excess of that required to service senior debt. In addition, lenders offering mezzanine debt frequently require an equity kicker above and beyond the higher interest income usually received to compensate for the added risk.

The maturity of typical mezzanine loans tends to range from three to five years, with principal payments commonly deferred until senior debt is retired. And while, by its nature, mezzanine financing has no hard and fast terms or structures, there are a few terms commonly used in commercial real estate transactions. The most common type used with stabilized properties is straight debt, where the lender receives no equity and has no management participation. On the other hand, when looking to increase LTV to 90%, borrowers may have to give up some cash flow equity and upside potential to lenders through the use of a participating note.

Because of the complexity of terms, costs and suitability of mezzanine and other forms of financing, real estate owners, developers and brokers across the country have come to rely on the experts at Remington Financial Group for their expert advisory services and ready access to its well-funded global network of capital sources. Whatever financing may be required, the professionals at Remington can help secure it.