Mezzanine Financing – What Is a Mezzanine Loan?
Here is the text book definition:
Mezzanine financing is similar to a second mortgage; the main difference is that mezzanine loans are secured by a fraction of ownership of the project, as opposed to the real estate.
They are similar to second mortgages, but make it far easier for the owner to maintain ownership of the property without actually losing holistic ownership of it to the lender in the case of default.
Since the property that was financed produces income, it is incredibly simple to use a portion of this cash flow to repay the mezzanine lender.
A mezzanine loan is not a real estate loan. Instead, a mezzanine loan is loan that is secured by the membership interests (think of this as shares) of an LLC (think of this as a corporation) that owns a huge real estate project. If you own all of a company and the company owns all of the property, then you own all of the property. Let’s discuss below how a “mezz piece” forecloses. Mezzanine Foreclosure: A “UCC” (Uniform Commercial Code) process – Michael Linton – Chief Investment Officer