[BigIz]

I have a real estate development (Apartments) out of Dallas Forth Worth Texas. The project cost is $26 million with an estimated post construction estimated value of around $43 million. The developer is actually going to keep the project in their portfolio.

They currently have a 75% senior debt lender (deal not closed yet) and are looking for an additional 15% via mezzanine financing. They have an offer for the junior debt at around a 14% rate.

I did have a Lender that was going to look at the project but they were only willing to finance the senior position at 100% at around 6-7% rate. I believe it was interest only 2-3 years. Well, they had an upfront fee of $25,000 and the developer is not willing to pay ANY upfront fees.

If anyone thinks they can do the deal with NO UPFRONT FEES, I have the prospectus for the project. If you can do 100% financing at a competitive rate, we can present that to the developer OR just the mezzanine financing.

[Againstmediocrity]

I agree with you about upfront fees. But the rate of 14% on mezzanine loans is not accurate, at all.
Bridge loans interest rate are not less than 18%, usually with couple of points.

[RichardGerard]

Why would a Mezz debt firm take the risk to be in second position on a project that isn't cash flowing yet?

[BigIz]

I agree with you about upfront fees. But the rate of 14% on mezzanine loans is not accurate, at all.
Bridge loans interest rate are not less than 18%, usually with couple of points.

I was told they had an offer at 14% for a mezz 2nd but did not get much further than initial meeting when the "No Upfront Fees" became a huge issue. The Lender I had a contact with did not want to do mezz financing. They wanted to fund the whole project at 100%

[BigIz]

Why would a Mezz debt firm take the risk to be in second position on a project that isn't cash flowing yet?

Hey Richard, I am not an expert on these type of loans like you but you are correct that the Lender that I had did not want to do a 2nd loan. They were insisting on financing the whole project (non-mezzanine). The big issue for the developer was the upfront $25K fee.

Originally the developer was looking for 90% financing and the senior lender would only go to 75%. From what I have learned so far about Mezzanine Financing, I am assuming the developer probably wanted to go mezzanine on the 2nd so it could have the option to not show the loan as a debt on their balance sheet?

Since you do not think a 2nd position mezz loan is viable, do you know anyone who may finance 90% of these type of projects?

[RichardGerard]

Morning BigIz,

This is not about being an expert it's merely about risk and protection to secure collateral. If a Lender really likes the prospectus/appraisal, and the guarantor, they may go to higher LTV.. Then again they may feel that in the event of a default they want more equity in the project to enable them to liquidate to recoup their investment.

Look at it this way: if the Lender is the only one putting skin in the game- they are the only ones at risk.. even in the most secure projects- lenders need the borrower to have a substantial stake in the transaction.

[Againstmediocrity]

No Lender will go 90% on a construction loan.
60% LTV if developer has a history of projects successfully done.
In that case a mezz is necessary. But location also is key. Not familiar with TX construction biz, sorry