For larger commercial developments such as low rise or high rise residential complexes, retail and industrial condo developments, and other income earning properties, the capital structure to build, acquire, or remodel larger projects can become both difficult and complex.
One of the main difficulties with the larger projects is a lack of equity to balance off the construction financing being sought. Maximum debt financing in most cases is 75% of the project costs, so there needs to be 25% equity in place either in owner cash injection or property security value.
If the owners have a well designed and organized project that has a solid profit potential in a good real estate market area for similar structures, then mezzanine construction loans can be a great source of equity financing.
While considered as equity by the senior lender, the funds secured through a mezz funder are registered as a mortgage behind the senior lender’s position.
Mezzanine financing refers to financing that sits after senior debt and before senior equity, so while structured as a mortgage, it can still carry stock options to provide an additional equity return.
Here are some keys to being able to attract Mezzanine construction loans:
To attract this type of money, the project has to basically have everything lined up so this becomes more of an add money and stir exercise.
Mezz funds are looking for in demand projects that are being managed and built by individuals or companies with a strong track record with similar projects.
To explore mezzanine construction loan options for your project, please give me a call and we will go through your capital requirements together.