An In-depth Analysis Of Rapid Methods Of Mezzanine Finance

Dec 14, 2015  

Other owners plan to make moderate capital expenditures to reposition the property as a higher class and therefore capture greater rents. Therefore, it is prudent to expect that a future refinancing, or sale of the property, will provide enough proceeds to pay-off both the senior and mezzanine loans. Mezzanine finance, by definition, defies generalization--there is no typical or standard deal structure. Furthermore, a mezzanine loan, as John C. More The top financial intermediaries ranking reflects total dollar volume of commercial real estate loans arranged in calendar year 2012.... In other cases the building has significant vacancy and requires leasing activity and tenant build-out or leasing commissions. The narrowest case is one in which the lender lends cash and gets a warrant to convert the loan, or portions of it, to stock either any time at the lender's option or in the case of partial or complete default. It is important to understand that this accrual amount compounds at the full note rate, and is capitalized into the outstanding principal balance.

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government will continue to support Freddie Mac, as reflected in its current rating of the GSE. However, if, at some point, Fitch views the support as being reduced and receivership likely, the rating of Freddie Mac could be downgraded and ratings on M-1, M-2 and M-3 notes, along with their corresponding MAC notes, could be affected. RATING SENSITIVITIES Fitch's analysis incorporates sensitivity analyses to demonstrate how the ratings would react to steeper market value declines (MVDs) than assumed at both the MSA and national levels. The implied rating sensitivities are only an indication of some of the potential outcomes and do not consider other risk factors that the transaction may become exposed to or be considered in the surveillance of the transaction.

There are, of course, other options available to a property developer who is looking for a means to bridge the gap between senior debt and available equity. However, many aspects of mezzanine financing must be considered prior to either lending or borrowing. In general, developers are heavy users of leverage in their strategy execution. Mezzanine finance providers can evaluate the project and draw their own conclusions as to whether they think the owner will perform the construction according to the plan and then determine the likelihood of the property achieving the rents and leasing activity that has been projected. Using the logic above, a small loan program entails transactions on properties valued between $10-75 million. Moral Hazard -- One incremental risk that applies to any situation with a borrower and a lender is referred to as moral hazard. To help, mezzanine loans may be fully or partially amortizing, which reduces the loan balance while debt service payments are being made. In many cases, the mezzanine financing ends at the time of refinancing. Whether mezzanine purchase, mezzanine refinance, or mezzanine construction, our mezzanine department offers a wide variety of options.

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Fitch to Rate JPMCC 2015-JP1 Commercial Mortgage Securities Trust; Presale Issued - Yahoo Finance

Five loans (26.6%) allow for future additional mezzanine debt. One loan (1.8%) allows for affiliated unsecured subordinate debt. Low Mortgage Coupons: The pool's weighted average mortgage coupon is 4.77%, below historical averages. Fitch accounted for increased refinance risk in a higher interest rate environment by analyzing sensitivity to increased interest rates. RATING SENSITIVITIES For this transaction, Fitch's net cash flow (NCF) was 7.7% below the most recent net operating income (NOI; for properties for which a recent NOI was provided, excluding properties that were stabilizing during this period). Unanticipated further declines in property-level NCF could result in higher defaults and loss severities on defaulted loans, and could result in potential rating actions on the certificates. Fitch evaluated the sensitivity of the ratings assigned to JPMCC 2015-JP1 certificates and found that the transaction displays average sensitivity to further declines in NCF. In a scenario in which NCF declined a further 20% from Fitch's NCF, a downgrade of the senior 'AAAsf' certificates to 'BBB+sf' could result.

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