Commercial real estate borrowers often need financing in amounts exceeding what traditional first mortgage lenders will provide. Profound changes in various forms of subordinate finance have occurred in the wake of the financial crisis of 2008. This paper discusses those changes and describes the current state of play in this important area.
Topics addressed include:
- The various types of subordinate financing available to borrowers and their equity owners
- Intercreditor agreements governing mezzanine loans as well as “recognition” agreements in connection with the related area of “preferred equity” financing
- The post-default enforcement of mezzanine loans and preferred equity
- Special issues that arise with CMBS loans as a result of the impact of certain rating agency standards and other aspects of CMBS on real estate subordinate finance
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A version of this white paper has been published as Chapter 36 in Thomson Reuters – Business Workouts Manual, 2017-2018 Edition.