New York real estate attorney Robert Ivanhoe of Greenberg Traurig discusses the in-between nature of a mezzanine lender.
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Well, the mezzanine lender is kind of in an in-between position between a typical mortgage lender, the first priority lender, and the equity. So, in the risk chain, their money is at risk after the equity has been wiped out in the transaction, if it ever comes to that. So, a mezzanine lender has to focus on what their cost is, what their cost basis is plus the cost of the debt that’s senior to them, and they have to underwrite and approach a transaction as if they may ultimately be the owner of the property. Because if their borrower fails, they have to be prepared to step in and assume all of the obligations of the owner to the property, otherwise their investment will get wiped out also.