Commercial real estate investors sometimes need to think outside the box to raise the money required to reach their business goals. Mezzanine loans are one way to bridge the gap between the money they have and the financing they need. Although they’ve taken a backseat in recent years, mezzanine loans are emerging as a viable option for savvy investors.
What Is a Mezzanine Loan?Mezzanine loans are a combination of debt and equity financing. They are considered riskier than other types of loans, so a limited number of lenders offer them.
Real estate investors usually seek mezzanine loans to finance major acquisitions or development projects. Mezzanine loans lie above preferred and common equity but below senior debt. This “in the middle” position is where mezzanine loans get their name.Mezzanine Loan Benefits Why would a property investor want to investigate mezzanine loans? Here are the pros to this type of financing:
- Mezzanine loans are a way to gain access to capital to fund future projects.
- Interest payments are tax-deductible.
- These loans are often flexibly-structured with multiple repayment plans.
- Mezzanine loans are usually classified as equity instead of debt, keeping borrowers open to other types of financing in the future.
Using a Mezzanine Loan: Three Typical SituationsMezzanine loans often come with higher interest rates when compared to other options, and they are sometimes tough to acquire. Why would a real estate investor want to seek one out? Here are three situations where a mezzanine loan might be a good option:
- If a business owner wants to draw on their equity but is unable to refinance their real estate, they might apply for a mezzanine loan to gain access to the cash they need to take on a large project.
- Mezzanine loans help developers complete financing for new construction projects.
- Experienced property investors can use their knowledge to get a value-added mezzanine loan to purchase a partially-vacant space that reflects the anticipated LTV after all units are rented, rather than the current LTV.
Contact Us Today!
If you’re a commercial real estate investor, you need expert guidance to navigate the available loan options. At commercialmortgages.com, we are a one-stop shop for all of your commercial financing needs. Contact us today to learn how to achieve your financial goals through commercial real estate!