Mezzanine financing allows borrowers to obtain financing in addition to a mortgage loan, but mezzanine loans add complexity, with additional documents, legal opinions, and third-party reports. Mezzanine lenders require separate consent rights for various actions by the borrower, and restructuring a nonperforming loan is especially problematic given the diverging interests of the mezzanine and mortgage lenders.
Since the mezzanine lender's security interest is in the borrowing entity rather than the property, it must conduct entity-level diligence, including analyzing potential claims and agreements entered into by the property owner. Existing contracts and licenses might contain restrictions on transfer--the pledge securing the mezzanine loan or any foreclosure of the pledge could violate such limits.
The mezzanine loan agreement should track the mortgage loan agreement, with mortgage loan representations recast to refer to the mezzanine borrower and the mortgage borrower. The mezzanine borrower and the mortgage borrower should be required to comply with entity-level covenants and property-related covenants.
The mezzanine borrower's obligations are secured by a UCC pledge of equity interests in the property owner. The pledge can be perfected under Article 8 of the UCC. The mezzanine borrower's ownership interest in the mortgage borrower must be certificated so the mezzanine lender can take physical possession of the membership certificates. The operating agreement should also include Article 8 opting-in language.
Listen as our authoritative panel discusses the nuances of mezzanine financing.
Watch Now
Watch this on demand webinar with CPA, Alex Jerkins, and find out about the latest tax changes that could impact you and your business. You will learn: Details about the Paycheck Protection Program (PPP) and stimulus loans and how they impact your taxes, Changes to the IRS procedures.
Watch Now
From multifamily to corporate real estate, it’s usually not easy to make the invisible important to buyers and tenants. Air filtration calculus and material chemical composition just isn’t as compelling as skyline views and granite countertops — nor is the invisible as easy to showcase. But in the current environment the ways that our interior spaces are helping keep us safer and healthier lead the benefits list for nearly every customer. Hear how real estate leaders on both coasts are creating people-first places and readying them for a real estate market that has changed forever.
Watch Now
Strafford
Commercial landlords still coping with past-due rents and soaring vacancies are aggressively seeking ways to protect their financial interests and minimize loss. Meanwhile, distressed tenants are turning to the Bankruptcy Code to safeguard their assets from creditors. The Bankruptcy Code offers protections to both commercial landlords and tenants but raises a number of complex legal issues. Commercial landlords must develop strategies to anticipate and protect against the fallout from tenant bankruptcy.
Watch Now