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Attractive Financing

July 31, 2013

Attractive Financing

Financing for investors is more attractive than ever due to a 40 year all time low in interest rates. Economists believe that the Federal Reserve will keep rates low due to rising concerns on Wall Street over the war with Iraq (Reis, 2003.) There are three appealing structured financing options for investors. A mezzanine loan that is normally used on an assumption purchase, the loan is for the difference in the first lien and equity the borrower has to purchase a property. A bridge loan is a short term loan that allows the borrower to obtain the property until permanent financing is put in place. A conduit loan is direct financing. Each type of loan’s characteristics is described below.

Mezzanine Loan

  • Non­recourse
  • 1.10 debt service coverage ratio
  • Subordinate to institutional first mortgage
  • 85%­–90% loan­-to-­value
  • 3­–5 year loan term
  • Prepayable
  • Interest rate: 9%–11%

Bridge Loan

  • Non­recourse
  • 1.10 debt service coverage ratio
  • Prepayable
  • 85%­–90% loan­-to-­value
  • 1–2 year loan term
  • Interest rate: 5.5%–7.5%

Conduit Loan

  • Non­recourse
  • 1.25 debt service coverage ratio
  • Up to 3-year libor based floating rates
  • Up to 80% loan-to-value
  • 5–10 year fixed rates
  • Interest rate: 5.3%–5.5%