Mezzanine debt and preferred equity

A commercial property can have more than one layer of capital. The senior loan is the first mortgage. Mezzanine debt is a second loan, behind that mortgage. It is often repaid only after the senior lender is paid, and the agreement between the two lenders says who can foreclose and who must be asked first. Preferred equity is different. It is an ownership interest in the entity that owns the property. It is paid a preference before common equity, and it is not, by itself, a promissory note. Sponsors use mezzanine when they want more proceeds than the senior lender will advance and they want that extra piece to be debt. They use preferred equity when the senior lender will not allow another loan, or when the capital partner wants an ownership position. Those are structural reasons. They are not tax advice, and this note is not legal advice.

The Mortgage Bankers Association's site is industry context for commercial mortgages. TreppTalk comments on commercial credit. The OCC's March 2022 booklet describes senior commercial real estate risk at national banks. None of them is an offer to sell a security. Capital Market Funds is not a Fannie Mae DUS lender.

What this office will place, and what it will not

We arrange mezzanine and other private debt with capital partners who make loans. The Arizona page for that layer is Arizona mezzanine. Senior bridge, when the first loan itself is short, is Arizona bridge. We do not offer preferred shares, we do not run a securities offering, and we do not describe preferred equity as something the reader can buy from this website. If a senior lender's program allows an Optigo lender to make a preferred equity investment, that is Freddie Mac's description of Optigo lenders on its financing page. This firm is not an Optigo lender and does not make that investment.

A permanent senior loan, once the property is stabilized, is Arizona permanent. Where mezzanine sits among other structures, without a rate, is lender types compared. A short loan after construction is a mini-perm, which is still not preferred equity. Definitions are in the glossary.

Questions that keep the two layers apart

Is there a note, and who is the lender? If yes, you are talking about debt, senior or mezzanine. Is the money an ownership contribution with a preference? Then you are talking about preferred equity, and you need counsel who handles that document, not a mortgage term sheet with the name swapped. Who gets paid first if the property is sold? Who can take the keys? Those answers should be in the senior loan documents and in the mezzanine or equity documents. If you cannot point to the paragraph, the structure is not finished.

The office is 7373 E Doubletree Ranch Rd #255, Scottsdale, AZ 85258. The phone is (480) 495-8072. Arizona CMB-1047342 and NMLS 1445066. We will not quote a mezzanine coupon. A conversation is not a commitment from a mezzanine lender.