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Mezzanine financing for hospitality property owners

Abstract

This paper intends to familiarise owners of hospitality properties with an additional financing tool available to them which recently has become very popular. Mezzanine financing is a source between the equity ownership and the overriding primary debt on the property. The availability of this financing tool has become increasingly important over the past couple of years since senior mortgage lenders have been very conservative in their underwriting guidelines. Accordingly, they have reduced the loan proceeds they are willing to lend. Unless the hospitality property owner is willing to put up a substantial amount of equity, which could be up to 40–45 per cent of the property's value, mezzanine financing is a possible solution. The paper also discusses which type of lenders are active in this arena and which characteristics hospitality property owners should focus on as they look to pursue a lender to fit their individual needs. Finally, the paper briefly sets forth the different types of mezzanine financing and the various mezzanine financing structures.

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Correspondence to Adam F Weissenberg.

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2has 17 years' experience in the real estate services industry. His work has included providing technical expertise to consulting engagements as well as identifying new business in the real estate capital markets industry. As a leader of the financial advisory services business line at Deloitte & Touche, he has acted as adviser in a number of loan portfolio sales. He is also a leader of the due diligence service line and has performed load underwriting, portfolio acquisition or portfolio disposition due diligence services. He can be contacted on +1 212 436 6798.

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Weissenberg, A., Cohen, J. & Culliney, P. Mezzanine financing for hospitality property owners. J Retail Leisure Property 3, 115–121 (2003). https://doi.org/10.1057/palgrave.rlp.5090168

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Keywords

  • debt
  • finance
  • hospitality
  • hotel
  • lending
  • mezzanine