Mezzanine Loans and Preferred Equity Financing For Ground Up Commercial and Multifamily Construction

When balancing the cost of debt vs. equity, sometimes layering a second debt piece on top of a lower leverage senior loan becomes necessary. Capital markets today are providing less aggressive senior leverage when it comes to construction debt, particularly non recourse construction debt. As such, if you find yourself with a 55% LTC senior loan, it may make sense when in search of bolstered IRRs to layer a piece of mezzanine financing on top of your senior (using either the real estate itself or the shares of the single asset entity as collateral). 

Construction Mezz and Pref Equity Highlights For Multifamily and Commercial Property

Amount:                               $3 million and up

Term:                                    Coterminous with first

Interest Rates:                     L + 900 - 1400

Amortization & Payment:   Interest only with partial pay-current

Maximum LTC:                     85% LTC (but generally 75%)

Recourse:                            Non-recourse to key principals with standard carveouts 

Security:                              Pledge of Shares and/or Second Lien