Has anyone used mezzanine debt financing / can speak to rates charged?

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July 13, 2020

by a searcher from University of Pennsylvania - The Wharton School in New York, NY, USA

Looking to finance small hotel deals and curious to required rate of returns mezz lenders and preferred equity investors are looking for nowadays.

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Reply by a searcher
from University of Pennsylvania in Chicago, IL, USA
Not sure on preferred - but sub debt that I have seen has been quoted at 15-18%. 15% being the the required payment with 3% in PIK notes to get to an all-in cost of 18%. Those numbers are what I have seen for middle-market business acquisition financing. Real estate is a distinct vertical, and probably has lower rates. Perhaps closer to 12-15%. Agreed though that hospitality has been gutted, which will likely create opportunities of its own.
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Reply by a searcher
from Babson College in Raleigh, NC, USA
Might be a while before institutional capital is interested in hospitality again. It will take many months or years to find market clearance due to the covid situation. Occupancy is down across the board by unprecedented levels.
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