MidCap has extensive Mezzanine and Bridge lender relationships to provide value in the case of non-conforming commercial real estate opportunities. A bridge loan is a short-term loan which “bridges” the borrower’s plan from point A to point B. A bridge loan works well when a borrower only needs financing for a very short time frame so a long-term fixed rate loan is not the solution. For example, perhaps the property owner is currently in the process of selling an office building so that they can then purchase a multi-family property, however, the money from the sale of the office building has not come through yet and a closing has to happen on the second property. Therefore, the owner needs a bridge loan so that they can go ahead and buy the second property, and then, when the sale of the first property occurs they can pay down the bridge loan. It could also be that a property owner simply needs a bridge loan after a permanent loan has matured and a decision has not yet been made whether to sell the project or refinance back into the permanent market.
What is a Mezzanine Loan
A mezzanine loan is a hybrid of debt and equity financing that is used to increase loan proceeds beyond the first mortgage. Often, a mezzanine loan serves as debt capital that gives the lender the rights to convert to an ownership or equity interest in the property if the loan is not paid back in time and in full. In the case of a default, the mezzanine loan also has the right to initiate foreclosure of the property. However, a mezzanine loan, by definition, is subordinated to debt provided by the first mortgage and thus will need to coordinate with (or perhaps pay off entirely) the first mortgage holder to proceed with a foreclosure. As such, a mezzanine loan has a higher risk factor for the lender and generally carries a much higher interest rate to compensate for the increased risk