Mezzanine lenders are tripping over each other in their haste to accommodate hungry borrowers. Each week brings news of another commercial real estate fund amassing capital to make or acquire mezzanine loans, which are secured by the stock of the company that owns the property rather than by the real estate itself.
There is plenty of demand for such loans, too, as investors attempting to refinance or acquire properties struggle to increase their leverage beyond the 75% loan-to-value ratio typically available from senior mortgage providers today.
Yet experts say mezzanine lending is being squeezed out of the capital stack by conservative underwriting at the senior mortgage level. Seeking to reduce default risks, most first mortgage lenders have tightened restrictions on an asset’s overall leverage and left little room for mezzanine loans. Some mortgage lenders go one step further, prohibiting secondary financing altogether by spelling out the restrictions in their loan documents. …
Above all, investors should start lining up replacement financing six to nine months before their existing loans reach maturity, according to David Striph, senior managing director of Dallas-based Westmount Structured Finance. “When you run out of time, that’s when you put yourself in the position of having people take advantage of you,” he says. “You don’t want that bullet staring at you as your options start running out.”
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