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Most mezzanine
loans and/or bridge loans - in the
context of the commercial real estate development financing envelope - are
considered to be near-term debt financings that create more problems than the
mezzanine loans (or bridge loans, as the case may be) cure for the developer and/or owner/operator of a given
commercial real estate development project. There are many predatory
lenders in the field who specialize in spending your at-risk capital
contributions on loan application fees and commitment fees for loans that will
never close. This has become so prevalent that Rainmaker Marketing
Corporation has created this section on the web server to help you manage the
process and weed out at least some of the more egregious examples of predatory
lending.
First (and foremost) ask yourself why you are seeking this type of
financing. If the intended use of the mezzanine/bridge loan is to replace
equity that you DO NOT have, then you are using the wrong capital funding
element. Most mezzanine loans are based upon the borrower being lent their
own money - in other words - a lending decision is only made if the borrower can
demonstrate that they already have the equity investment. If you are
seeking to ACQUIRE additional equity financing, then this route will NOT serve
your interests. The lender will take your application fee (usually $15,000
to $25,000) and then turn you down. It would be better in these cases to
utilize Rainmaker's commercial income-producing property ownership syndication
service and raise capital using a TIC Plan.
Next, you have to have the collateral. Most (but not all, by any
measure) mezzanine/bridge lenders realize their financing has to be subordinated
(must be junior) to the construction loan; this eliminates the main collateral
the lender would otherwise encumber. You must be prepared to offer
collateral independent of the project mortgage and this collateral must be equal
to 150% to as much as 350% of the origination amount of the financing. If
you don't have it, then the lender puts your application fee in their pocket and
moves on to the next victim.
Perhaps it may be wiser to give consideration to a fractional real estate
ownership syndication plan approach to providing additional financing for your
proposed project. Once all the required due diligence exhibits are
created, reviewed and approved an actual syndication runs for 90 days. If
you have done your homework and are offering what the market perceives as a real
opportunity, then you may be able to obviate the more costly financing
alternative.
Finally, you must demonstrate multiple opportunities for retiring this
financing. The most obvious route is a pending refinancing of the
construction phase debt into a permanent mortgage. This means you have to
make sure your construction lender (who is quite often the perm lender) know
that you want to finance an amount in excess of their construction loan.
This may require additional interim loan exposure, but without having a loan
commitment that retires the financing, you will (once again) have paid a hefty
application fee for nothing.
About
Rainmaker Marketing Corporation...
Rainmaker
Marketing Corporation is a consulting firm that focuses on providing the due
diligence services on a business to business (B2B) basis. Rainmaker
Marketing Corporation can trace its roots back to the late '80's and was
formally incorporated in 1994.
Over
the years, Rainmaker Marketing Corporation consultants have completed hundreds
of assignments across the United States (45 states), Mexico, Canada and the
Caribbean Basin. RMC's new construction project due diligence
documentation services have led to the successful development of
income-producing properties valued (in the aggregate) in the billions of
dollars.
Take
a few minutes and learn more about RMC. This website is designed to
provide a wealth of planning information pertaining to the capitalization,
operations, and organizational program tenets today's savvy entrepreneurial
company must embrace for continued growth and success...
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