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| | Bridge,
Mezzanine Loans & Commercial Real Estate Project Construction Financing...
Before you jump on the
bridge
loans bandwagon and start shelling out money for "application
fees" and "commitment  premiums" (and
goodness knows what else) you
have to understand when and where to use these capital financing tools because
these are expensive tools to buy.
Bridge
loans and mezzanine loans serve to very different functions at different times
in the deal's genesis:
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Bridge
loans are used for pre-existing properties to form a funding
"bridge" between project states of operation or levels of equity
creation. If a project
is expected to undergo a significant value increase once some milestone has
been reached and a temporary financing net needs to be constructed to
support the project in the interim, a bridge loan may make sense. The
limiting conditions are the time it takes to get from the present operating
state to the next - with the projected term of the bridge loan being equal
to twice the time management currently projects it will take to reach the
milestone. If the cost
of capital is in flux and/or the ideal cost of capital cannot be reached
until some other condition (or the passage of a minimum period of time) is satisfied, then a bridge loan makes sense. |
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Mezzanine
loans are used as a capital financing tool to augment the capital financing
pie when the developer has insufficient equity resources to qualify the
project for additional mortgage financing to cover the gap. Mezzanine
loans do not release the developer from completing the project due diligence
documentation requirements regarding the prime mortgage financing and
mezzanine loans come with their own caveats and risks. There are many
mezzanine lenders out there who are really in the "fees business"
(i.e.: these firms don't fund mezzanine loans, but they do take application
fees and commitment fees from suckers). If you are considering a
mezzanine loan, lender due diligence is of critical value. It is
almost a daily routine for us to learn about yet another developer who has
been victimized by a supposed mezzanine lender who charged them fees, got
paid the fees and then disappeared. |
Continued. | |
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Do
You Know The Secret?
When it comes to commercial real
estate development finance, it doesn't matter whether you need to raise
$5 million or $50 million, the out-of-pocket costs, advance fees and
project due diligence costs will always require the same relative
investment dollars the promoters have to fund. Do you know what
that amount is? Do you know the Secret? |
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