Mezzanine financing arrangements can provide added flexibility for developers and property owners when acquiring funds for their projects. These hotel loans are designed to put the equity or ownership stakes of a project to work by taking out a loan using these assets as collateral. This can provide ready funds for acquiring new hotel properties, resolving cash flow issues or constructing a new project.
How Mezzanine Loans Work
Mezzanine loans are considered to be high-risk hotel lending arrangements. For properties that already have a sizable first mortgage, finding a lender willing to take junior status to provide a second mortgage can be a challenging proposition. Mezzanine financing lenders do not offer mortgages. Instead, they are collateralized by a lien on the company that owns the property. This can allow the lender to act much more quickly in cases of default, which can provide added incentive for a real estate private equity firm or other investor to offer these lending arrangements.
The Structure of Mezzanine Loans
Mezzanine loans are generally issued for amounts of more than $1 million and can be structured as short-term or long-term mezzanine debt. Depending on the lender, interest may be figured as fixed rate, floating rate or amortized. Most mezzanine loans are designed as short-term floating rate interest-only arrangements to be repaid as quickly as possible.
Applications for Mezzanine Loans
Mezzanine loans are typically used for one of three purposes.
- These lending arrangements can provide added cash on hand for unexpected expenses or to pay off debts. The funds borrowed can be repaid out of the income generated by the hotel or other investment properties.
- Probably the most common use of mezzanine loans is to leverage equity to acquire another income-producing property.
- Mezzanine loans can also provide the funds needed to begin a new construction project.
By acquiring the necessary funding through mezzanine hotel loans, hotel owners and property developers can take advantage of opportunities in the real estate marketplace and can ensure the smoothest operations for their current holdings.
Benefits of Mezzanine Loans
In some cases, mezzanine loans may be available even for those who have been declined for traditional second mortgages. The way in which mezzanine hotel loans are structured and collateralized can make them a more attractive proposition for investors and lending firms.
At Stonehill Strategic Capital, we offer financial solutions tailored to the hotel industry. Our hotel lending experts can provide you with the right solutions for all your short-term and long-term financing needs. From bridge loans ranging from $5 million to $50 million to mezzanine loans up to $10 million, we can deliver the right options for your hotel and real estate development plans. Call us today at 713-666-2544 to discuss your financial needs with us. We look forward to the opportunity to serve you.