Commercial
Real Estate Loans > Most Large Commercial Construction Loans Now Need a Mezzanine Loan Piece
Most Large Commercial Construction Loans Now Need a Mezzanine Loan Piece
Large
Commercial Construction Lenders Prefer to Be Less Than 80% Loan-to-Cost
In
the old days, if a developer wanted to build a $20 million office tower
or mixed use project, he merely had to contribute $3 million towards
the total project cost (15%). Some bank would then make a commercial
construction loan that was 85% loan-to-cost.
Modernly
most large commercial construction lenders want to stay around 80%
loan-to-cost. Eighty percent?! Does this mean that the developer has
to cover 20% of the total project cost in cash ($4 million in our example
above)?
No.
The way deals are getting done is that the developer contributes around
7% of the total project cost and then obtains a mezzanine loan (which
resembles a second mortgage) for around 13% of the project cost. A
typical mezzanine loan on a construction project today might cost 10%
and 1-2 points. The mezzanine lender on such a highly leveraged construction
deal would also typically also take between 25% to 50% of the profits
("of
the up").
You
can apply to scores of mezzanine lenders using C-Loans.com.