Mezzanine Financing
Mezzanine loans applied to commercial, industrial, and multifamily real estate are a powerful tool for enhancing standard commercial mortgages. This unique financing vehicle can often exceed the limits of traditional bank loans, allowing you to build beyond your previously available funds.
Businesses often need to bridge the gap between loan limits and the total cost of their acquisition, and in these cases a mezzanine loan can be a practical solution. Fairway 21 specializes in structuring mezzanine lending for private investors, small/middle market real estate entities, and family offices.
We have built a strong network with an array of experienced lenders and investors across the nation. This network gives us the ability to offer you direct access to the most competitive rates and terms available to private investors, small/middle market real estate entities, and family offices.
“We are regularly brought deals from mezzanine investors who say, “Look, we think this deal will be fine, we know the market, we know the asset, and if anything goes wrong, the investor is securitized.” But mezz lending isn’t for amateurs. It can create complicated situations… There’s a lot of strategizing as to how to move forward with these loans.”
– Eliot Subin
Mezzanine Funding is generally secured via a subordinate lien on the property and often provides an option for ownership assumption. This strategy can be applied across a variety of financing vehicles.
- Commercial mortgages
- Construction loans
- Cash out leveraging
- Refinancing loan vehicles
- CMBS
- Bridge lending
- Preferred equity
- Real estate private equity
When electing to pursue a commercial mezzanine loan, success almost always depends on the unique circumstances of the client and quality of the lender.
Our job is to understand the client, the property, the market, and the lenders so that we can create a unique solution that positions all parties for success.
– Mike Subin
There is over $20 million in investments under the management of the Fairway 21 family of businesses
We have managed our fair share of Commercial Real Estate investment deals. In our experience we have found success doesn’t come solely from constructing a financed project. Success requires sourcing the right money with the right partners. We’ve learned through detailed work and repeated effort how to increase the likelihood of financial success by building partnerships with a shared vision and commitment to a collaborative process.
Mezzanine financing is a hybrid between debt financing and equity financing. Mezzanine investors have a choice as to whether to receive a payout at the time the property is sold, or to convert their investment into equity, banking on property valuation increases for a payout at a later date. Since these types of loans inhabit a certain position in the capital stack, they supply leverage to the borrower at a lower cost than senior loans.
If your established business is seeking financing above what senior lenders are able or willing to extend, Fairway 21’s financial experts will help you find the right mezzanine level partners as a source of additional capital. If you are an investment firm, retirement fund, or private equity investor seeking mezzanine level investments, we will match you with seasoned operators for sound investments and valuable return on investment.
Location in Capital Stack
The capital stack represents the total amount invested by all lenders in financing the business.
Higher positions in the stack represent more risk to the investor in exchange for higher rewards. The lowest position is occupied by the senior loan; the most secure position and the first to be repaid. The next higher positions in the stack, preferred equity and common equity come with more risk but greater returns.
Mezzanine loans are part of the preferred equity mid-level. They are normally secured by a junior mortgage or pledge of equity. Lenders may receive periodic interest payments at a higher rate than the senior debt, but get paid only after the senior debt obligations are met.
Element of Equity
Since mezzanine financing is a combination of equity and debt financing, there are natural elements of equity built in.
Borrowers can secure mezzanine loans without diluting their company’s equity. In the case of default on the loan, a mezzanine investor has the option to convert their repayment to equity in the borrowing company. Because the lender’s position in the capital stack involves more risk, interest rates are typically higher, but allow for more flexible terms. Lenders may also request more involvement in the company, such as seats on the board. As the value of your company increases, mezzanine investors also realize an increase.
When it is a good fit
Mezzanine loans are especially well suited to companies that have roots in the market and are looking for opportunities to acquire new properties or absorb a competing business.
They are preferred for their tax-deductible payments, opportunities to defer interest, relatively short loan periods, and overall flexibility. Mezzanine loans go above the limits of most bank loans, allowing businesses to bridge the gap between those loan limits and the total cost of their acquisition. The best way to determine if mezzanine financing is right for you is by meeting with a professional advisor. Our financial team has extensive experience in mezzanine financing and will sit down with your team to determine if it’s the right move for you.
