LOAN PRODUCTS
Mezzanine Loans
& Creative Financing Solutions
Co-General Partnership, Preferred Equity, and Commercial Mezzanine Loans can be useful tools for borrowers who need to fill a funding gap in their capital structure. Dominion Financial has decades of experience structuring deals that are a win-win for all parties involved.
Multifamily
Office & Retail
Industrial
PROGRAM HIGHLIGHTS
- Offering Co-General Partnership, Preferred Equity, and Commercial Mezzanine Loans to multifamily, office, retail and industrial real estate deals.
- Specializing in creative solutions to workouts, turnarounds, capital call gaps, maturity defaults and partner buyouts
- $1MM-$10MM positions on $3MM-$100MM deals
WHAT Are The different types of
creative Financing Available?
Co-General Partnership Loan: A co-general partnership loan is a type of real estate investment loan that is used to finance commercial real estate development projects in which two or more entities come together to act as co-general partners. In this type of loan, the lender provides financing to the co-general partnership, which is a joint venture between two or more companies that share the risks and rewards of the project. These loans typically provide more flexible terms and may have a lower interest rate than other types of loans. They require strong partnerships, communication, and alignment between the parties involved.
Preferred Equity Loan: A preferred equity loan is a type of real estate investment loan in which the lender provides financing to a borrower in exchange for a preferred equity stake in the property. In other words, the lender becomes a part-owner of the property, entitled to a share of the property’s profits, and usually receives a higher rate of return compared to traditional debt financing. Preferred equity loans are typically used in situations where the borrower needs additional equity but does not want to dilute ownership. These loans often have a shorter-term and a higher interest rate compared to traditional debt financing.
Commercial Mezzanine Loan: A commercial mezzanine loan is a type of real estate investment loan that is used to finance the acquisition or development of commercial properties. This loan is considered a second mortgage because it sits behind the primary mortgage, and it is used to bridge the gap between the borrower’s equity and the primary mortgage. Commercial mezzanine loans typically have higher interest rates and shorter terms compared to traditional debt financing, but they allow borrowers to access more capital than they would be able to obtain through traditional financing. These loans are typically used when the borrower has a strong equity position and is looking to leverage it to obtain additional financing.
How Can Real estate investors utilize Creative financing solutions?
Real estate investors can use mezzanine loans to finance their real estate projects in a number of ways. Here are some examples:
Capital Stack Restructuring: An additional capital infusion, structured as debt or equity, that is primarily used to stabilize deals facing cash in refinances or project overruns.
Partnership Buyouts: Utilize this creative financing solution to buy out other partners. Gain more control over your investment.
Acquisition Financing: If an investor wants to acquire a property but does not have enough equity to do so, they can use a mezzanine loan to fill the gap. For example, if an investor is purchasing a $10 million property and has $7 million in equity, they can use a $3 million mezzanine loan to complete the purchase.
Refinancing: An investor can use a mezzanine loan to refinance existing debt and lower their overall cost of capital. For example, if an investor has a $10 million mortgage on a property and wants to refinance, they can use a $3 million mezzanine loan to pay off the existing mortgage and reduce their interest rate.
Construction Financing: Mezzanine loans can be used to fund the construction of a new property. If an investor is constructing a $10 million property but only has $5 million in equity, they can use a $5 million mezzanine loan to fund the construction.
Bridge Financing: Mezzanine loans can be used as a short-term bridge loan to fund a project until permanent financing can be obtained. For example, if an investor is acquiring a property and has a commitment for permanent financing in six months, they can use a mezzanine loan to bridge the gap until the permanent financing is obtained.
interested in a commercial mezzanine loan?
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important things you should know
FREQUENTLY ASKED QUESTIONS
Unlike traditional loans, mezzanine financing is typically unsecured and offers more flexible terms and repayment schedules. Mezzanine loans also have higher interest rates and may include equity kickers or warrants that allow the lender to participate in the success of the project.
The terms and interest rates for commercial mezzanine loans can vary widely depending on the lender and the specific project. In general, mezzanine loans have higher interest rates than senior debt, ranging from 10% to 20% or more. They also often include origination fees and prepayment penalties. Mezzanine lenders typically require a minimum equity contribution from the borrower and may have other covenants and conditions that must be met. The term of a mezzanine loan is usually shorter than senior debt, typically 2-5 years.
Commercial mezzanine loans can be used to finance a wide range of commercial projects, including multifamily, build-to-rent, ground-up, industrial, real estate developments, hotels, shopping centers, and office buildings. Mezzanine lenders are generally interested in projects with strong cash flow potential and a clear path to profitability. Projects that are too risky or speculative may not be eligible for mezzanine financing.
The benefits of using a commercial mezzanine loan include the ability to access additional capital that may not be available through traditional lenders, as well as more flexible repayment terms and potential equity upside. Mezzanine financing can also help developers or investors avoid dilution of their ownership stake in a project.
