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Mezzanine Loans - Continued...

Continued from page 1...

Next, you have to have the collateral.  Most (but not all, by any measure) mezzanine/bridge lenders realize their financing has to be subordinated (must be junior) to the construction loan; this eliminates the main collateral the lender would otherwise encumber.  You must be prepared to offer collateral independent of the project mortgage and this collateral must be equal to 150% to as much as 350% of the origination amount of the financing.  If you don't have it, then the lender puts your application fee in their pocket and moves on to the next victim.

Perhaps it may be wiser to give consideration to a fractional real estate ownership syndication plan approach to providing additional financing for your proposed project?

Once all the required due diligence exhibits are created, reviewed and approved an actual syndication runs for 90 days.  If you have done your homework and are offering what the market perceives as a real opportunity, then you may be able to obviate the more costly financing alternative (mezzanine/bridge loans) and control your own destiny.

You must also demonstrate multiple opportunities for retiring this financing.  The most obvious route is a pending refinancing of the construction phase debt into a permanent mortgage.  This means you have to make sure your construction lender (who is quite often the perm lender) know that you want to finance an amount in excess of their construction loan.  This may require additional interim loan exposure, but without having a loan commitment that retires the financing, you will (once again) have paid a hefty application fee for nothing of value.

A good question and one that the Rainmaker Marketing Corporation consultants field quite frequently.  Basically, a mezzanine loan is used as near-term (three (3) years or less) funding measure for developers seeking to create additional financial investment leverage by using the mezzanine to replace the capital contributions the developer would otherwise make to the transaction.  Let's be very clear on this point - mezzanine loans replace the capital you have in your hands and not capital that you do not have in your hands.  If you are seeking to acquire additional equity investment then you have the following choices to consider:

  1. Shelve the project until you have enough funds to cover all contribution requirements your project may have regarding at-risk equity and capital contributions; or

  2. Undertake a private placement offering of equity securities to raise the funds necessary and thereby accept a potentially massive dilution of your ownership interests in the project; or

  3. Undertake a private placement offering of equity securities that are based upon some investment incentive entitlement the project may qualify for at the local, state and/or federal level.

The third choice is the most common one the developer usually seeks to implement.  The entitlements review should have been undertaken in the course of the market feasibility study's completion.  If this is not the case, then consider having Rainmaker complete the investment incentive entitlements review without delay.  It costs far less than a mezzanine loan application fee and can offer you the opportunity to utilize these incentives to provide your project with the equity financing (gap financing) you really need.  Rainmaker offers a comprehensive capital funding plan approach that will help you maximize your opportunity for funding success.

Do You Know The Secret?

When it comes to commercial real estate development finance, it doesn't matter whether you need to raise $5 million or $50 million, the out-of-pocket costs, advance fees and project due diligence costs will always require the same relative investment dollars the promoters have to fund.  Do you know what that amount is?  Do you know the Secret?

Rainmaker Marketing Corporation can trace its history back all the way to 1989.  Incorporated in 1993, Rainmaker Marketing Corporation has evolved over time into a full-service business to business consulting firm.  Rainmaker Marketing Corporation’s initial specialization was in issues and documentation needs corresponding to the capital funding cycle for commercial real estate development projects with a primary focus on senior housing and health care related properties.  Today, Rainmaker Marketing Corporation serves all types of commercial income-producing property development program financing requests with a combination of feasibility studies, due diligence services, structured finance consulting and a focus on commercial real estate syndication services.  Rainmaker Marketing Corporation’s service area includes all of the continental United States, Canada, Mexico and the Caribbean Basin.

281.537.1200

Email: consultants@rainmakermarketing.com

Commercial Real Estate Development Finance, Due Diligence Documentation, Syndication & Project Management Consulting

15519 Dawnbrook Drive, Houston, Texas 77068.

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