What is the "Mezzanine" technique???
- Thread starter Marten
- Start date
Hi,
Generally speaking its mostly used for developments which regular financial institutions class as too risky. In this case the developer will go for Mezzanine finance which is generally at a much higher rate. In return for the extra risk carried by the financier / investor, they receive a stake in the equity of the company doing the development.
This may not be 100% correct, but I hope it helps.
-Regards
Dave.
Generally speaking its mostly used for developments which regular financial institutions class as too risky. In this case the developer will go for Mezzanine finance which is generally at a much higher rate. In return for the extra risk carried by the financier / investor, they receive a stake in the equity of the company doing the development.
This may not be 100% correct, but I hope it helps.
-Regards
Dave.
I will have a go at it quickly.
To get finance most banks expect the developer to put in 30%, ie the bank will lend at most 70% (or lower).
If you are a developer then you must either put in your own 30% cash or get all or some of the 30% from someone else.
Since many (wanabe) developers dont have the cash, so they borrow from 3rd parties for this 30%.
This type of loan is called Mezzanine finance.
Since this is high risk finance the person offering the 30% should expect a good return and know the market/development side of the business very very well. If anything goes wrong...the Mezzanine finance cash would be the first to be lost.
If you are a high skilled, high knowledge, high capital, business person in the area of large scale developments then you could do well providing Mezzanine finance to other developer types. Danger awaits the unprepared, unskilled and greedy.
If a developers can build with $0 of their own money I ask the question "how much will the developers build?" answer is "as much as they can and then some more" with the followup caveat " - until it all goes to hell". If I could do development with 100% of OPM and zero downside risk for me personally...I also would do as much as I can!
To get finance most banks expect the developer to put in 30%, ie the bank will lend at most 70% (or lower).
If you are a developer then you must either put in your own 30% cash or get all or some of the 30% from someone else.
Since many (wanabe) developers dont have the cash, so they borrow from 3rd parties for this 30%.
This type of loan is called Mezzanine finance.
Since this is high risk finance the person offering the 30% should expect a good return and know the market/development side of the business very very well. If anything goes wrong...the Mezzanine finance cash would be the first to be lost.
If you are a high skilled, high knowledge, high capital, business person in the area of large scale developments then you could do well providing Mezzanine finance to other developer types. Danger awaits the unprepared, unskilled and greedy.
If a developers can build with $0 of their own money I ask the question "how much will the developers build?" answer is "as much as they can and then some more" with the followup caveat " - until it all goes to hell". If I could do development with 100% of OPM and zero downside risk for me personally...I also would do as much as I can!
Last edited:
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