Many people, even some experienced commercial real estate developers, mistakenly believe that mezzanine loans are only the second position of commercial mortgage loans against commercial property.
No, mezzanine financing is a very sophisticated form of loan that requires specialized business and banking knowledge. You can know more about commercial property loan – commercial real estate lending online.
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Many acquisition and development projects require additional financing beyond the traditional first mortgage. The simplest, fastest and cheapest loan method in this situation is to ask the seller or another lender to write a traditional second mortgage.
Unfortunately, especially in the current tight credit era, 2nd position liens are often impossible, due to lack of equity, or not permitted by mortgage agreements mandated by holders of 1st position.
The fact is that there are many scenarios where the second simple option is not available. These scenarios bring out what is known as a mezzanine loan.
Unlike mortgages, mezzanine loans are no guarantee of commercial real estate. This is a loan guaranteed by the assets of a business entity.
The title search will not produce a mezzanine loan because it is not attached to the property ownership document. In this way, they do not violate the 1st mortgage provision that blocks the 2nd.
With cooperation from borrowers, mezzanine lenders set a single goal, a business entity, such as LLC or Trust. The title and ownership of target real estate and related businesses are placed in the entity so that the entire project is owned by a new company.