n increasingly popular can take over the stock of the
loan vehicle for commercial company. This means that the
property, the mezzanine lender can sell the property
loan is similar to a second although it would still have to
mortgage with a major variation. pay off or satisfy the initial
Rather than being secured by the mortgage. This strategy provides
actual real estate property, a streamlined foreclosure that
mezzanine loans are secured by takes much less time than the
the stock that is held by the standard foreclosure on a
company that owns the real mortgage.
estate. The real estate itself
has already been used to secure Why would someone need to get a
the first, or primary loan. mezzanine loan rather than a
conventional second mortgage? In
If the company fails to make many cases, the terms of the
timely payments on their first loan preclude subsequent
mezzanine loan, the lender can liens or second mortgages on the
foreclose on the property, property. Hence, the mezzanine
seizing the stock. If the lender loan comes into play since it
has control of the stock, the does not involve the actual real
lender has control of the company estate holding. It allows the
and of the property or real borrower to have access to
estate. In fact, foreclosing on a additional funds that would not
loan that is secured by stock is be available otherwise.
much easier than foreclosing on a
loan that is secured by real Typically, a mezzanine loan is
estate property. one that is acquired for a large
project such as an office tower,
If the loan holder defaults on large shopping center, shopping
the mezzanine loan, the lender mall, large hotel, apartment
complex, or industrial park. should the need arise. The
Mezzanine loans are large loans mezzanine loan is a form of
that cover millions of dollars of junior financing that has no
debt. In fact, mezzanine lenders claim whatsoever on the
are often quite specialized in underlying real estate or
the specific type of loans that property. The company or partners
they offer. Therefore, it might in the project pledge their
be necessary to search for a interest holdings or stock as
lender specializing in loans for security. The interest of all
the specific venture that you are holders must typically be pledged
in. to the lender of the mezzanine
loan. This practice guarantees
The first mortgage always takes that the lender will acquire full
precedence and the mezzanine loan control of the stock or interest
always takes second place. For in the project should the loan
the borrower, one of the default. Partial control could
advantages is the ability to inhibit the ability to sell the
secure additional funds without property in order to realize the
the use of the property as repayment of the loan.
security. The borrower can meet
financial goals with the Mezzanine loans can be short
additional dollars provided by term, long term, fixed rate,
mezzanine loans. This would not floating rate, amortized, or
be possible with conventional standing. In most cases, they are
loans due to the terms arranged short term, interest-only, and
in the first mortgage. floating rate loan transactions.
Additionally, this type of loan
One of the advantages for the is generally used to borrow
lender is the ability to millions of dollars.
foreclose at a quicker pace
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About the Author:
Darin Ghaffari is a commercial finance expert and founder of DG Commercial Loans, a worldwide financial powerhouse.
