Few more things on mezzanine debt.
Important to understand mezz play is not super-safe debt, but rather a hybrid "in-between piece" in a classic debt & equity structure.
The inter-creditor deed will often not allow mezz to foreclose without the senior's permission.
Moreover...
Important to understand mezz play is not super-safe debt, but rather a hybrid "in-between piece" in a classic debt & equity structure.
The inter-creditor deed will often not allow mezz to foreclose without the senior's permission.
Moreover...
https://twitter.com/jesse_kleine/status/1375849748289052676
...if the values are down 35%?
In a single year? Highly unlikely, but can happen.
As the project goes into administration — depending on your LTV — mezzanine will most likely be in trouble or wiped out (if leverage was too high).
But so are equity investors, right?
In a single year? Highly unlikely, but can happen.
As the project goes into administration — depending on your LTV — mezzanine will most likely be in trouble or wiped out (if leverage was too high).
But so are equity investors, right?
So it shouldn't be a surprise.
Keep in mind that well-structured mezz can survive a -20% to -25% downturn — equity often cannot.
In other words, mezz debt is for investors who are after higher returns & are willing to take more risk (with solid downside protection).
Keep in mind that well-structured mezz can survive a -20% to -25% downturn — equity often cannot.
In other words, mezz debt is for investors who are after higher returns & are willing to take more risk (with solid downside protection).
Finally, not sure why people look at mezz debt as a silver bullet play?
There are no such things as a "too good to be true" solution.
Is one taking more risk than a senior, but less than equity?
Yes.
That's the whole point for a balanced risk/reward investor.
There are no such things as a "too good to be true" solution.
Is one taking more risk than a senior, but less than equity?
Yes.
That's the whole point for a balanced risk/reward investor.
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