How does a Mezzanine Loan work?
In real estate, mezzanine loans are used to supply additional cash beyond what's provided by a first mortgage on a property. If you look up the etymology of the word mezzanine, it comes from the Latin word "medianus" which means middle. If you've ever attended a play or a concert in a theater you may have noticed a mezzanine level. It is typically the lowest balcony and is close to stage. It follows then, in financing, that the term mezzanine refers to a type of loan that isn't on the bottom, but sits in the middle.
Let's examine a common scenario. You are able to bring 10% of the cash required to complete a transaction. The first mortgage will provide 70% of the needed funds. A mezzanine loan can provide the remaining 20% needed to complete the purchase, renovation, refinance, or recapitalization of a property. A mezzanine loan allows you to reduce the amount of cash that you need to bring to the closing table. When it's done right, this type of debt can be used as a tool to increase leverage and allow your money to go further than it otherwise would.
Mezzanine debt is typically secured by adding a 2nd lien to the property in question and/or taking a preferred equity interest in the ownership group. The term on this type of financing is typically 1-3 years in length. Mezzanine loans is typically reserved for larger projects around $3,000,000 and up.
Vista Commercial Capital can help you with your Mezzanine Loan needs
If you have an opportunity that you'd like to review with us where a mezzanine loan might be a good fit, we'd be happy to set up some time to have a discussion.