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Borrowers struggle to resuscitate their overburdened properties

Guest post by: Carl Moore

Article Overview: More than $400M in mezzanine and other alternative debt have been issued in the U.S. so far this year, a dramatic increase over the approximately $210M that was issued in 2009.

Borrowers struggle to resuscitate their overburdened properties

Mezzanine lenders are touting a dramatic increase in inquiries for mezz debt as borrowers struggle to resuscitate their overburdened properties. More commercial real estate owners see their equity being wiped out and their properties harbored only by LIBOR-based loans. And while there are still more lenders than borrowers in the competitive arena, mezz lenders are donning their body armor and heading back into the trenches, hoping to capitalize on a growing pool of properties in need of reinforcements.

More than $400M in mezzanine and other alternative debt have been issued in the U.S. so far this year, a dramatic increase over the approximately $210M that was issued in 2009. With all the debt maturing over the next few years, businesses will continue to find it difficult to get refinancing, and those that can secure credit are likely to find that it is much more expensive. So taking a longer look at alternative debt structures, such as mezz and asset-based lending, will become a necessity.

Even though, liquidity in commercial real estate continues to improve, borrowers that currently pay 2.5% to 3% interest will have serious problems once they are forced to pay 6% to 7%. Rates on mezz loans have fallen sharply this year as more lenders enter the market. Last year, a mezz loan could easily have cost the borrower 18% and 2 points. Today most lenders are quoting 11% to 12% and 2 points. Since senior loans are more conservative than before, mezzanine debt can raise the leverage and still be considered inexpensive equity

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Article Tags: borrowers, construction financing, equity, financing, lenders, permanent financing, SBA loans



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