A surge of commercial real estate owners are expected to seek mezzanine financing in 2013.? Mezzanine financing, also known as bridge financing or interim financing, is used to span the gap between senior debt and the borrower?s equity.? The large number of maturing loans and expected new purchases combined with more stringent loan-to-value (LTV) ratio requirements will compel investors to find non-traditional money sources.? Mezzanine lending is one of the more attractive debt sources compared to joint venture strategies or adding additional equity.
Across the nation, commercial real estate ownership remains fundamental to many investors. A tidal wave of vintage 10-year loans and more recent ?extend and pretend? modifications will mature this year, and many of those investors will need to new money to successfully restructure their debt. Prior to 2008, LTV ratios could top out at 90%, but in today?s market an LTV of 70% is the new normal, even for well-heeled borrowers.? With commercial mortgage backed security (CMBS) candidates, the ratios can be even more stringent.
Mezzanine lending is an attractive alternative to other money sources for several reasons.? Bridge loans are less restrictive than senior debt and allow the borrower to choose from a wider variety of investments. Bridge financing is usually cheaper than committing additional equity from the borrower.? And finally, equity joint ventures can bring new money to a deal, but the borrower?s ownership portion will be diluted.? Mezzanine financing is left, therefore, as one of the more desirable options.
Whether commercial real estate investors are looking to restructure an existing loan or finance a new commercial real estate purchase, mezzanine lending will most likely play a part in the deal.? Mezzanine lenders are growing in number which makes for a competitive market, but borrowers should still shop for mezzanine loans with open eyes and use a mortgage broker or other third party professional when it?s beneficial.
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