Occasionally we get that educational post from an industry expert that is a stroke of luck for us and readers because such information and explanation is never generally available especially, in plain English.
Our luck is extraordinary this week with a concise write up on mezzanine real estate loans which is not the typical product marketed to us by our bankers but rather common in the larger world of private finance.
Wikipedia Definition : In finance, mezzanine capital is any subordinated debt or preferred equity instrument that represents a claim on a company’s assets which is senior only to that of the common shares. Mezzanine financings can be structured either as debt (typically an unsecured and subordinated note) or preferred stock. https://en.wikipedia.org/wiki/Mezzanine_capital
Mezzanine loan information is rather difficult to procure given that they are transactions done at arms length between the borrower and lender possibly with unique terms and clauses that could work against the favour of shareholders.
Given the lucrative interest rates that some of these loans pay out, private investors will find them attractive over other debt instruments.
Our contributor today, Small Office Rent Guy, has summarised the risks and rewards for us.