How Does This Work?
Having a poignant and direct conversation about what you seek is where we start. Give us 7 minutes to answer your questions and provide a quote.
Here’s what we need on our first telephone conversation:
- What loan size do you want?
- When do you want to close?
- What are the terms of your FIRST loan?
- What’s the approximate value of your property?
Once we have an idea of your needs and particular circumstances, we will structure a deal that’s perfect for you. Most loan requests from beginning to funding should take approximately 2 weeks.
What Are the Alternative Loan Structures?
Junior loans that can be made against commercial real estate often take a mezzanine position that hold shares of the company that owns the property as its security, but not the property itself, or this second loan is cross-collateralized by a completely different property. The subordinated loans that are becoming popular are not mortgage loans that get attached to the property. These mezzanine loans hold the shares of the entity that owns the property as collateral. If the debtor defaults on a mezzanine loan, he or she risks losing the entity that owns the property and, therefore, risks losing the property itself.
In case of default of the mezzanine loan, the second lien lender takes over the ownership of the borrower entity, not the property itself. This structure is usually comprised of Special Purpose Entity’s (SPE) to satisfy the creditors as to bankruptcy-remoteness and follow the first lien covenants against secondary debt and ensure the collateral value.
Similarly, the owning entity may simply create an agreement through qualified legal counsel that provides non-collateralized financing. For example, a commercial property owner that happens to be a limited partnership, may create an amendment to the operating agreement that establishes a unique, sub class of investors that lend money to the holding entity and in return receive a preferred interest position as to repayment. And though these class of investors that provide the secondary financing cannot take over the holding entity, the arrangement can allow for the forced sale of the asset in case terms are not met.
Borrowing money against commercial real estate where the senior lender prohibits such activities is only advisable if the structure and character of the financing legitimately and legally navigates around the senior lender’s security instrument language. This is best done by securing an enthusiastic and qualified lending or capital team including legal counsel, accountancy and private investment dollars and advisory services.