Mezzanine debt as a financing option | Commercial Property ...

Posted on: October 30th, 2012 by admin@cpp

Those companies interested in Georgia commercial real estate property may look for various ways to finance their purchase. One option they may utilize is mezzanine debt, also known as mezzanine financing.

The main difference between mezzanine debt and a traditional commercial mortgage is that the former is unsecured. Mortgages are backed by the properties themselves, while the mezzanine debt option actually is secured through equity. This means that the company's total assets are balanced against the financing plan.

Typically, this type of financing is used by companies with a comfortable amount of income, but both small and large companies have the ability to acquire such a plan. It is important to know that the entity looking to purchase or construct property must have their parent company acquire mezzanine financing. Depending on the financial situation of the company, larger entities may have the most success with mezzanine debt.

Because the method of mezzanine debt is through the company's equity, it is important that the lender sees the process through successfully. A successful property will be of heightened importance for the lender, as they have some interest in the success of the mortgage. This makes the financing setup more risky for them, but it also has a higher reward.

Mortgage versus mezzanine debt
When mezzanine debt is used for a property, there is usually another standard mortgage in place. The mortgage will likely be the priority payment, but this can depend from lender to lender.

While mortgage payments are strictly regimented over a set period of time, mezzanine debt may have easier payments. This is because the equity is stretched out over a longer period of time than with mortgages. Additionally, the mezzanine debt may be of lesser importance in the short-term, especially if there is an immediately difficult finance situation.

While foreclosure is possible with any property, there may be some help from the lender in a mezzanine debt situation. Not only will the mortgage payment be considered the most necessary payment in this situation, as previously mentioned, but the mezzanine debt lender may be more willing to help with a payment. This is because they have a direct stock in seeing the project succeed, which could give some companies a temporary safety net for their finances.

Source: http://www.cpprofessionals.com/cre-news/mezzanine-debt-as-a-financing-option-40011

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