Borrowing habits of US real estate holders changing.The borrowing habits of U.S. real estate holders are changing from a preference for equity financing Equity Financing The act of raising money for company activities by selling common or preferred stock to individual or institutional investors. In return for the money paid, shareholders receive ownership interests in the corporation. to mezzanine and blended arrangements. At the Real Estate Lenders Association's meeting on October 14, Capital Trust, Inc. executives tried to explain why their market niche is a growing trend. John R. Klopp and Stephen Plavin formed Capital Trust in 1997 as a company that concentrates on mezzanine investments. The company has since closed loans worth more than $3.2 billion. According to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. Klopp, the reason is limited capital availability in traditional loan transactions. "In today's environment cheaper money is available. but you can't borrow as much of it," he said. "There is a gap between what the borrowers need to make their projects work and what the banks can provide." When real estate owners and developers need that extra cash, a mezzanine loan A mezzanine loan is a relatively large loan, typically unsecured (ie., not backed by a pledging of assets) or with a deeply subordinated security structure (e.g., third lien on the property but non-recourse vis-a-vis the borrower). will deliver the money, while eliminating most of the risk. Unlike a traditional loan, a mezzanine loan does not have to be secured by the property. Instead, the borrower puts up his partnership interest in the project as a security. "Normally, if you fail to pay the loan, the lender gets the property," said Larry Feldman, president and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of Feldman Equities, another financing specialist. "In the case of the mezzanine loan, only the partnership interest is at stake. In the event of foreclosure foreclosure Legal proceeding by which a borrower's rights to a mortgaged property may be extinguished if the borrower fails to live up to the obligations agreed to in the loan contract. , the rights of the mezzanine lender are behind those of the second and first mortgage lender." Another advantage of mezzanine loans is that they are less expensive than traditional equity arrangements. According to Scott Schaeffer, president and COO of RAIT RAIT Redundant Array of Inexpensive Tapes RAIT Radioiodine Therapy RAIT Ram Rao Adik Institute Of Technology RAIT Request and Authorization for In-scope Tasking RAIT Rdma Applications Implementations and Technologies Investment Trust, "A lot of borrowers, after their property [goes up] in value, take an equity loan and turn it into cash. A mezzanine loan is an alternative to that and in the long run, it's more profitable." At the same time, not every property is a good candidate for a mezzanine financing Mezzanine Financing A hybrid of debt and equity financing. Mezzanine financing is typically used to finance the expansion of existing companies, and it is basically debt capital that gives the lender the rights to convert to an ownership or equity interest in the company if the . Capital Trust is willing to invest only in a particular kind of product--income-producing commercial buildings. "We are very focused on what the property's terminal cash flow is," said Klopp. "Most of our activity is clustered in major metro areas This article is about the music production team. For the article about population centers, see metropolitan area. Metro Area are a Brooklyn-based dance music production team composed of Morgan Geist and Darshan Jesrani. and we focus on existing, leased office buildings, hotels and shopping centers. We tend not to take volatile assets." "The best properties for a mezzanine loan are the ones that have a stable cash flow," agreed Feldman. "In the case of the General Motors building, which just got a $200 million mezzanine loan, the property has been stable for a number of years, with income-producing, long-term leases. "But a mezzanine loan on a hotel or an office building with soon-to-come lease expirations would be very dangerous. It wouldn't make sense for the lender." |
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