What distinguishes senior debt from mezzanine debt? The terms Senior Debt and Mezzanine Debt may have come up in conversation regarding real estate development or construction financing. The borrower in the above example will only be able to obtain a loan of $15 million if a lender will only extend credit up to a maximum LCR of 75%. This loan, known as the "Senior" share, is frequently protected by a first mortgage on the development property.
The borrower will require an additional $5 million to cover the entire TDC even if they are successful in obtaining a Senior loan of $15 million. If the borrower is unable to cover this expense out of pocket, mezzanine financing may be necessary.
Senior debt is followed by a non-tradable instrument called mezzanine debt. A bullet payback, accumulated cash return, and stock warrants are usually included. In addition to the customary return on interest payments, stock warrants give lenders exposure to equity gains
They also highlight the management team's skills and potential for advancement. The mezzanine debt provider is entirely dependent on future cash flow for loan repayment once the mezzanine loan has been given to the borrower.
This forces them to have patience with the borrower and have a long-term perspective. They offer higher interest rates on their loans because they are riskier than a senior lender. Additionally, because they usually receive warrants in the company, they have greater potential. These are some of the distinctions between mezzanine debt vs senior debt.
Financing for senior, subordinated, mezz, real estate, and preferred stock is handled by Clearwatercm. Based on their solid real estate debt capital markets relationships, they specialize in loan placement for pre-development, development, transitional, and stable properties across the United States. Banks, credit unions, debt funds, family offices, hedge funds, ultra-wealthy individuals, life insurance companies, mortgage REITs, and pension plans are some of their funding sources.
They have a number of connections with institutional investors and limited partners that are keen to take a back seat in a direct purchase, joint venture, or discretionary fund that enables sponsors to successfully acquire or recapitalize assets. Consult Clearwatercm for advice on domestic and foreign financial options, including Mezz loan real estate debt funds, insurance firms, banks, and government-sponsored institutions.