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Mezz: The good, the bad, and the ugly

Mezzanine financing is debt secured by the shares of the property. The Mezz lender has the rights to convert to an ownership or equity interest in the company in case of default, secondary to the senior lender.

  • Although Mezz is great way to complete your capital stack, due to the higher level of risk, it is typically more expensive than your first position mortgage but is still cheaper than taking in more partners.

  • The typical deals are 70% senior loans and 10 - 15% mezz.

  • Traditional lenders often won't lend if there is mezz involved because they don't want a second lien on the deal. Also, the higher mezz rate and additional leverage can cause the free cash flow to be tighter than the 1st lien lender is comfortable with.

  • We've seen clients get as high as 85%-88% financing on a clean CMBS loan. 

  • You can also do Mezz with a Fannie or Freddie loan, but the lender must be approved by Fannie/ Freddie.

  • Before going into a mezz loan, you should look into your preferred equity options- stayed tuned, we'll expound on it next week.


In summary Mezzanine loans, when structured properly, can get you the leverage and blended pricing that will be the difference between your deal happening and not happening.



Contact Marc Tropp to discuss your financing options.


Marc Tropp Senior Managing Director
Office: 202-629-9140
Mobile: 347-678-8491
mtropp@easternuf.com


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