Structured Financing

Mezzanine financing is a sophisticated lending solution that occupies a subordinate position to senior debt. Typically aligned with the term of the senior loan, mezzanine debt allows sponsors to minimize their cash equity investment, thereby preserving overall liquidity. This form of financing is advantageous because it effectively closes the financing gap and can be executed quickly. Mezzanine debt is available for various loan types, including construction, bridge, and permanent loans, providing flexibility and rapid deployment to meet diverse financing needs.

Preferred equity is a hybrid financing mechanism that combines features of both equity and debt. When a sponsor opts to use preferred equity, preferred equity investors enter into a joint venture agreement (JVA) within the organizational structure. While the sponsor retains control over all major decisions, the JVA provides security for the preferred equity investor akin to a loan agreement. Preferred equity partners receive a preferred return but do not benefit from appreciation upside. This financing vehicle is advantageous as it effectively bridges the financing gap and can be swiftly executed. Preferred equity is available for various loan types, including construction, bridge, and permanent loans, offering flexibility and rapid deployment to meet diverse financing needs.

Stretch senior loans, typically offered by debt funds, provide leverage comparable to that of a senior loan combined with either mezzanine debt or preferred equity. These loans are commonly utilized for construction and bridge loan opportunities and, in some cases, can offer a lower blended cost of capital. One of the key advantages of stretch senior loans is the reduction in the number of contact points, consolidating interactions to a single group instead of multiple parties, as seen in senior + mezzanine or senior + preferred equity arrangements.

PACE (Property Assessed Clean Energy) financing, overseen by the U.S. Department of Energy, allows property owners in select states to fund energy-efficient projects. PACE loans, treated similarly to tax liens, can finance up to 30% of a project’s costs or value, depending on the level of energy efficiency achieved. These loans are commonly used to reduce the overall blended cost of capital for projects, providing a cost-effective way to incorporate energy efficiency improvements.