In the fallout of the 2008 property implosion, the financial markets in
Of course, as is the way of the world, the financial pendulum has now swung fully in the opposite direction to the point where banks are almost completely unwilling to loan money to anyone considering a real estate investment.
Necessity is the mother of invention as they say, and the financial vacuum left by the lack of real estate investment funding has seen other forms of financing come to the forefront in the world of property financing. One great example of this is something called Mezzanine funding (also referred to as Mezz funding), which is a type of hybrid funding where the lender covers their capital investment risk by being able to convert their financial stake in the property into an equity interest in that same property. So in a manner similar to trust deeds, Mezzanine funding removes most of the risk associated with investing in real estate in the current economic climate.
That all sounds wonderful so far, but surely there are some downsides involved in acquiring this type of funding? Well, because this type of capital investment is required with little or no warning, this leaves very little time for the lender to perform due diligence on the property itself. So to cover their risk even further, Mezzanine financing is priced pretty aggressively and you can expect to pay between 15% to 25% interest on whatever you borrow.
Any business also has the option of raising money by selling shares in the company, but this then creates the headache of dozens, or perhaps hundreds, of small shareholders who all now have a vested interest in the business itself. This can unnecessarily complicate what should be a very simple process, so that's why more and more businesses are turning to Mezzanine funding as a way of raising money quickly, and without any real risk to themselves, their business or the lender.
Of course lenders are not going to just offer Mezz funding to anyone who approaches them, so your books will need to be in order and you'll need to be able to demonstrate positive cash flow in your business for a period of approximately 3 years, otherwise the lender won't be willing to go ahead with the loan.
So if you find yourself in a position where you need to raise reasonably large amounts of capital in a very short space of time, and you don't have the time or the energy to sell shares or a stake in your business, Mezz funding provides a very simple solution to your problem. From your point of view, you can get the funding you need without having to jump through all the usual bureaucratic hoops, and the lender is covered because at very worst they walk away from the deal with a stake in your business.
Another little bit of good news is that in a market where most investment funding has gone to ground, there are literally hundreds of Mezz financiers, including
For more information on
Keywords for this news article include: Real Estate, CRE Finance Llc, Investment and Finance.
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