Why choose mezzanine capital for real estate financing?
Up until the overall regulatory framework was tightened up by Basel II, banks provided real estate developments, building contractors and project developers with up to 100% debt capital for real estate financing. Nowadays, banks are generally calling for companies to provide at least 20% to 30% in own funds, making it much more difficult for real estate developers to promote one or more properties at the same time. During the financial crisis, the raising of capital came to an almost complete standstill. Basel III prompted banks to increase the equity requirements imposed yet again as a direct consequence of the financial crisis. Sooner or later, this will also drive building contractors or project developers to look for alternative and flexible financing partners outside of the banking sector.
Mezzanine capital for real estate project financing
When it comes to real estate financing, mezzanine capital is a very suitable alternative form of financing for building contractors, real estate investors or project developers looking to implement their desired construction project, be it with or without bank financing.
Mezzanine capital offers far-reaching advantages for building contractors and project developers, and a major advantage is the fact that, thanks to its flexibility, the capital can be adapted in various ways to suit the financing structure of the real estate projects.
The contractual partners are free to set terms, interest rates and termination periods. The repayment agreement can also be customised.
As described in the opening section, many project development companies or building contractors no longer meet the various requirements imposed by banks.
Mezzanine capital, however, offers the answer and solution to the question. It means that companies are no longer reliant on banks, as the overall financing of the real estate projects can only be achieved with mezzanine capital. Furthermore, the fact that the borrower is not obliged to transfer voting rights means that the company retains control. The term of the mezzanine financing is based on the project term and can also be extended by exercising certain options or terminated prematurely without incurring any prepayment penalty.
The financial situation and success of the real estate project is the top priority for the investor.
For whom is mezzanine capital an option?