Using the Web and social media to sell real estate

Entering a new field you need to know the jargon and the commercial real estate world has a language of its own that is used by the professionals to communicate very specific concepts that do not exist in other fields of domestic or international real estate activities.

Mezzanine lenders bring the money needed to complete the deal.

A mezzanine lender is similar, in commercial real estate, to the very well known hard money lender in residential real estate, but with some important differences. The hard money lender is somebody who provides the money required to complete a transaction and lends it for a limited amount of time and for an interest value that is substantially higher than a regular loan. The purpose of the hard money loan is to overcome some type of situation: maybe avoid a foreclosure or bankruptcy or, more commonly, buy a property that you plan to resell to somebody else for profit.

A mezzanine lender instead provides the amount of money that is necessary to complete a deal for which regular lending has already been secured. Let’s say an investor wants to buy property for 1 million dollars and he had a loan from a bank for 70% of the value. He is expected to come up with 30% of the investment value but he has only 20% and the additional 10% would allow him to close the deal and eventually make a profit.

He calls a mezzanine lender that will put in the remaining 10% secured by a second mortgage and with an interest rate that is substantially higher than the bank and will be paid back before the investor gets any money. Often the mezzanine loan doesn’t require any payment, but accumulates interests that are all paid at the end.

So the scenario in this case would be: at selling or refinancing, the bank is paid back first, the mezzanine lender is paid back second and the original investor is paid back at the end.

Roberto Mazzoni

P.S. Remember to note down the event we are organizing on June 9th in Tampa where you will learn