Market Trends 2017/18: Mezzanine Financing


Summary

Mezzanine debt is a financing vehicle that typically serves as a bridge between debt and equity in a borrower's capital stack. While mezzanine debt is used in mergers and acquisitions (M&A), leveraged buyouts, and other contexts, this note will focus on mezzanine lending in a commercial real estate (CRE) context. While more expensive than a senior mortgage loan, mezzanine debt is often less expensive than equity and allows the borrower a certain amount of flexibility, including the ability to maintain control over the property. The impact of governmental regulations and other trends since the economic crisis in 2008 brought a number of new types of lenders to the CRE lending space, a trend that continued through 2017. Many of these new lenders have provided mezzanine loans for construction and development deals. As the president and chief financial officer of RXR Realty (RXR) told the publication The Commercial Observer, the company issued mezzanine construction loans “because ...