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MEZZANINE FINANCING

Looking for the best mezzanine loan? Ocean Pacific Capital is a leader in providing all types of mezzanine programs. Whether mezzanine purchase, mezzanine refinance, or mezzanine construction, our mezzanine department offers a wide variety of options. Particularly in today's tight senior debt market, mezzanine is an increasingly important capital option for growing companies. We provide the best mezzanine financing from $1,000,000.00 to $1,300,000,000.00. If you are looking for a commercial mezzanine conduit, or construction mezzanine financing in California, or any other state, with good or bad credit, we can help you find the mezzanine program that meets your unique and individual needs.

A mezzanine loan is a relatively large, unsecured loan (a loan that is not backed by a pledging of assets) with a maturity of at least five years. The loan carries a detachable warrant (the right to purchase a certain number of shares of stock or bonds at a given price for a certain period of time) or a similar mechanism to allow the lender to share in the future success of the business. Mezzanine loans are dependent on cash flow for repayment.

Mezzanine loans are similar to second mortgages, except that mezzanine loans are secured by a percentage of ownership of the project, a 2nd T.D. that owns the property, as opposed to the real estate. If the company fails to make the payments, the mezzanine lender can foreclose on the stock in a matter of a few weeks. If you own the company that owns the property, you control the property. Therefore, a mezzanine loan is secured by the stock of a company, which is personal property and can be seized much faster. Mezzanine loans are large. It is hard to find a mezzanine lender who will thoroughly read through all of the required paperwork for a loan of less than $5 million. Typically, mezzanine lenders typically prefer big projects.

Furthermore, a mezzanine loan, as John C. Murray explains in his article entitled "The Mezzanine Financing Endorsement," is "a result of the increased securitization of real estate and the packaging of pools of loans for sale into the secondary market, mezzanine financing has become very popular in recent years. Mezzanine financing (or, perhaps more appropriately, mezzanine capital) fills the gap between the first mortgage financing, which usually has a loan-to-value ratio of forty to seventy-five percent, and the equity participation of the principals of the borrower, which is usually no more than ten percent of the cost of the project.

Mezzanine financing commonly supplies financing of ten percent to fifty percent of the project's capital structure cost. This type of financing can take several forms. Most commonly, it involves extending credit to the partners or other equity holders of a borrower and taking a pledge of such parties' equity interests (including the right to distributions of income). Alternatively, the lender may take a preferred equity position, which is entitled to distributions of excess cash flow after debt service, ahead of the borrower's principals. A "combination" loan structure may also be used to combine a first mortgage loan with mezzanine financing at an aggregate loan-to-value ratio of ninety to ninety-five percent. This type of structure may contain a shared appreciation or contingent feature, an exit fee paid by the borrower, or sometimes, both.

The borrower in a mezzanine loan is often an LLC, and the equity participant in the borrowing entity is frequently itself an LLC. In those situations where the mezzanine lender is taking a pledge of some or all of the equity interests in one or more of these entities in connection with the mezzanine loan, the lender may look to the title insurer for special forms of title-insurance coverage. The lender may seek some form of non- imputation coverage, i.e., assurance that the title insurer will not deny coverage under the owner's policy based on matters known to the borrowing entity (or its members) being imputed to the lender. Copies of endorsements offering this type of coverage are attached hereto.

Title underwriters may require an affidavit and an indemnity agreement from the existing LLC members, and from the mezzanine lender when it exercises its foreclosure rights under the pledge and succeeds to an ownership interest in the mezzanine borrower. These affidavits and indemnity agreements will state that the respective parties have no knowledge of any fact that will affect the coverage under the policy, and will hold the title insurer harmless for losses resulting from its reliance on such affidavits and indemnities. The title insurer may also require, and review, financial statements from all relevant parties in order to achieve a comfort level for relying on the aforementioned indemnity. The attached endorsements state that (as agreed to by the insured and its equity members) all payments for loss under the policy will go directly to the mezzanine lender, and that there will be no denial of coverage as the result of the transfer of any of the LLC membership interests to the mezzanine lender.

The endorsements further provide that the title insurer waives its right of subrogation and indemnity against any of the insured owner's equity owners until the mezzanine loan is paid in full. If a loss occurs under the policy, the amount paid by the title insurer is limited to the actual loss less a percentage thereof equal to the percentage of LLC membership interests not owned by the mezzanine lender at such time. If the loss occurs before the mezzanine lender's acquisition of the insured owner's membership interests, the mezzanine lender is not required first to pursue its remedies against other collateral. However, the title insurer's liability in any event is limited to the amount of the mezzanine loan, and the title insurer is entitled to credit for any amount paid out under a simultaneous loan policy.

The title insurer is also entitled to reimbursement from payments received by the mezzanine lender from other security. The term "mezzanine lender" can be defined to include the owner of the mezzanine loan and each successor in interest in ownership of the mezzanine loan, and include any subsidiary or affiliate entity of the owner of the mezzanine loan.The availability and content of the attached endorsements will vary depending on factual and underwriting considerations, as well as statutory and regulatory restraints in certain states."

ADVANTAGES

  1. Even though the owner loses some independence, he or she rarely loses outright control of the company or its direction. Provided the company continues to grow and prosper, its owners are unlikely to encounter any interference from their lender.

  2. The flexibility of the arrangement is often a big plus; "[mezzanine financing] offers considerably more flexibility to structure coupon, amortization and covenants to accommodate the specific cash flow requirements of the business

  3. Lenders who are willing to enter into the world of mezzanine financing tend to be long-term investors rather than people looking to make a quick killing.

  4. Mezzanine lenders can provide valuable strategic assistance. "Subordinated debt advisors often bring fresh insights to businesses because they are financially sophisticated and have a great deal of experience developing strategies to maximize long-term value," said Levine.

  5. Mezzanine financing increases the value of stock held by existing shareholders, even though they will not have as great an ownership stake.

  6. Most importantly, mezzanine financing provides business owners with the capital they need to acquire another business or expand into another production or market area.


Click here to apply now or for more information please give us a call at 1-800-595-1474 for a free consultation with a specialist on how to obtain the best mezzanine financing for you. To view our recent closings, please visit our commercial loans page.


Whatever your financing needs,
we will tailor a loan that's right for you.

 
 
 


Daily Oil & Gas and Wall Street Journal News
7/18/18

Oil Steadies On US Stockpile Forecasts, Venezuela Worries
Posted on Monday July 16, 2018

Crude oil futures steadied as the focus turned to falling inventories in the US and further output constraints in Venezuela and Libya.

ICE to Launch Permian WTI Crude Oil Futures Contract
Posted on Monday July 16, 2018

The contract is expected to launch in third quarter of 2018 and will have physical delivery in Houston.

Offshore Texas Oil Terminal Could Load Asia-, Europe-bound VLCCs
Posted on Monday July 16, 2018

One VLCC can hold the equivalent of nearly one-fifth of daily US oil production.

Russian Gas Exports Hit a New Summertime Record
Posted on Monday July 16, 2018

Russia's natural gas flows to the European Union rise to a record for the time of year.

Carbon Holdings One Step Closer to Finalize Financing for $10.9B Plant
Posted on Monday July 16, 2018

Carbon Holdings hopes to finalize financing for its $10.9 billion petrochemical plant by the end of the year.

Permian Pipeline Builder to Challenge US Steel Tariff Exemption Rejection
Posted on Monday July 16, 2018

Plains All American Pipeline LP's request for an exemption from steel-import tariffs was rejected by the US government.

IHS Markit Sees Canadian Oil Sands Growth Moderating After 2019
Posted on Monday July 16, 2018

Canadian oil sands production will rise more than half a million barrels per day in 2019.

BSEE's Angelle: SafeOCS Participation Up Dramatically
Posted on Monday July 16, 2018

BSEE releases 2017 stats for SafeOCS data sharing program.

Electricity Investments Surpass Oil, Gas for Second Year Running - IEA
Posted on Monday July 16, 2018

Global electricity investments exceeded those in oil and gas for the second year running in 2017, the International Energy Agency says.

Azeri Oil Fund SOFAZ Reports 9% Rise In Assets To $38.04B
Posted on Monday July 16, 2018

Azerbaijan's state oil fund SOFAZ says its assets rose by more than 9% year on year to $38.04 billion as of July 1.

Wall Street Journal
Commercial News

7/18/18

WSJ.com: Commercial Real Estate

Sportswear-Maker Puma to Open New York Flagship
Germany?s Puma has signed a lease deal to creating a marquee location on Fifth Avenue that will be the first of its kind for the company in North America.

Kushner Cos., Brookfield Near a Deal for Stake in 666 Fifth Ave.
The real estate arm of Brookfield Asset Management is in advanced talks with Kushner Cos. to buy roughly a 50% stake in 666 Fifth Ave. and invest hundreds of millions of dollars in the Manhattan office tower, which has been at the center of a controversy over possible conflicts of interest involving Jared Kushner, President Donald Trump?s son-in-law and adviser.

Sign of the Times: New Office Space Created in Retail's Tumult
Normandy Real Estate Partners? $133 million deal for the upper portion of ABC Carpet?s flagship store is an example of office space edging into territory that once was retail?s domain.

Want to Buy a Luxury Hotel in the U.S.? Try China's Insurance Regulator
When Chinese regulators seized control of Anbang Insurance, they took ownership of more than a dozen luxury U.S. hotels. Now, as the government looks to sell, it faces a problem: The buildings likely are worth less than what Anbang paid only a couple of years ago.

New York's Commercial Property Slump Shows Signs of Slowing
After a two-year plunge, brokers are optimistic that more deals will take place in 2018.

NYC Council Stops Midtown Tower Construction
Work on an 800-foot-tall tower in East Midtown that has been under construction for six months was halted last week following a vote by the New York City Council to limit skyscrapers in the area,.

Malls Never Wanted Gyms. Now They Court Them
Mall owners long treated gyms, massage parlors, and billiards halls as unwanted tenants that attracted lower-rent visitors who were unlikely to shop. Now they?re giving health clubs some of their best real estate.

BRE #:00619059
Charles Elfsten, President
Charles A. Elfsten
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