Real Estate Mezzanine Financing: Structuring and Documentation, Due Diligence, Key Provisions
Drafting the Loan Agreement, Pledge Agreement, and Intercreditor Agreement: Entity Considerations
Course Details
- smart_display Format
On-Demand
- signal_cellular_alt Difficulty Level
Intermediate
- work Practice Area
Real Property - Finance
- event Date
Tuesday, January 21, 2025
- schedule Time
1:00 p.m. ET./10:00 a.m. PT
- timer Program Length
90 minutes
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This 90-minute webinar is eligible in most states for 1.5 CLE credits.
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This CLE webinar will examine the structuring and documentation of a mezzanine loan in the real estate context. The panel will discuss the borrower's entity structure, key loan provisions, documentation, including the pledge agreement and the intercreditor agreement, and due diligence issues unique to mezzanine lending. The panel will also discuss special issues associated with construction mezzanine loans.
Mr. Bachand-Parente’s practice focuses on complex real estate transactions, including lender and borrower side financing transactions, joint ventures and restructurings across asset types. He represents domestic and international banks, investment firms, private funds, operating companies and non-profit organizations. His extensive financing practice has involved the origination, syndication, structuring, securitization and work-out of mortgage and mezzanine loans, term loans, loan-on-loans and subscription facilities.
Mr. Gibbons’ practice focuses on representing major financial institutions, private equity funds and other institutional lenders in connection with complex real estate transactions across all real estate asset classes, including originations of acquisition financings, mortgage financings, mezzanine financings and other subordinate debt, construction financings, refinancings, acquisitions and dispositions of loans and financing of loans. His practice also includes representing institutional investors in connection with acquisitions and dispositions of real estate, joint venture agreements and developments.
Ms. Sarkar’s practice is principally focused on representing lenders and borrowers in the origination of mortgage and mezzanine loans secured by all types of real estate collateral. She also represents balance sheet lenders, CMBS servicers and borrowers in connection with workouts, loan assumptions, equity transfers, and other loan modifications and requests. Ms. Sarkar also represents lenders buying and selling whole loans, notes and participations.
Mezzanine financing allows borrowers to obtain financing in addition to a mortgage loan, but mezzanine loans add complexity, with additional documents, legal opinions, and third-party reports. Mezzanine lenders require separate consent rights for various actions by the borrower, and restructuring a nonperforming loan is especially problematic given the diverging interests of the mezzanine and mortgage lenders.
Since the mezzanine lender's security interest is in the borrowing entity rather than the property, it must conduct entity-level diligence, including analyzing potential claims and agreements entered into by the property owner. Existing contracts and licenses might contain restrictions on transfer--the pledge securing the mezzanine loan or any foreclosure of the pledge could violate such limits.
The mezzanine loan agreement should track the mortgage loan agreement, with mortgage loan representations recast to refer to the mezzanine borrower and the mortgage borrower. The mezzanine borrower and the mortgage borrower should be required to comply with entity-level covenants and property-related covenants.
The mezzanine borrower's obligations are secured by a UCC pledge of equity interests in the property owner. The pledge can be perfected under Article 8 of the UCC. The mezzanine borrower's ownership interest in the mortgage borrower must be certificated so the mezzanine lender can take physical possession of the membership certificates. The operating agreement should also include Article 8 opting-in language.
Listen as our authoritative panel discusses the nuances of mezzanine financing.
- Threshold issues with mezzanine financing
- Borrowing entity structure: SPE mortgage borrower/SPE mezzanine borrower
- Due diligence of mortgage borrower: claims, contracts, licenses
- Loan agreement
- Pledge agreement
- Intercreditor agreement
- Special considerations with construction loans
The panel will review these and other critical issues:
- How should the mortgage borrower and mezzanine borrower be structured to accommodate both a mortgage and mezzanine loan?
- What consent rights should the mezzanine lender have regarding the actions of the mortgage borrower?
- What is the Article 8 opt-in process, and how is certification of the mezz borrower's interest in the mortgage borrower documented?
- What provisions should be included in the intercreditor agreement to allow the mezzanine lender to protect its position?
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