What is the difference between Mezzanine debt and senior debt? In the context of property development or construction finance, you may have heard the words Senior Debt and Mezzanine Debt. If a lender will only lend up to a maximum LCR of 75%, the borrower in the previous case will only be able to acquire a loan of $15 million. This debt is referred to as the "Senior" part, and it is often secured by a first Mortgage on the development land.
If the borrower is able to acquire a Senior loan of $15 million, they will need an additional $5 million to pay the whole TDC. The borrower may be able to cover this with their own funds, but if not, Mezzanine financing may be required.
Mezzanine debt is a non-tradable instrument that comes after senior debt. It frequently includes a bullet payback, accumulated cash return, and equity warrants. Equity warrants provide lenders exposure to equity upside in addition to the usual return on interest payments.
They also emphasize development potential and the management team's capabilities. Once the mezzanine loan is granted to the borrower, the mezzanine debt provider is fully reliant on future cash flow for loan repayment.
This compels them to be patient with the borrower and to think in terms of the long term. They are more risky than a senior lender and, as a result, charge higher interest rates on their loans. They also have more upside because they are frequently given warrants in the firm. These are some of the differences between mezzanine debt vs senior debt.
Clearwatercm handles senior, subordinated, mezz loan real estate, and preferred stock financing. They specialize in loan placement for pre-development, development, transitional, and stable properties across the United States, based on their well-established real estate debt capital markets relationships. Their funding sources include banks, credit unions, debt funds, family offices, hedge funds, high net worth people, life companies, mortgage REITs, and pension plans.
They have several relationships with Limited Partners and Institutional Investors that are interested in participating passively in a direct acquisition, joint venture, or discretionary fund that allows sponsors to successfully buy or recapitalize assets. Seek guidance from Clearwatercm on local and international finance possibilities, such as insurance companies, banks, government-sponsored institutions, Mezz loan real estate debt funds, and others.
Clearwater Capital Management, LLC
430 Park Avenue New York, NY 10022
Email- [email protected]
Website - https://clearwatercm.com/