Information on Mezz Lending
I was recently laid off from a corporate position investing in commingled real estate funds. It was a pretty good job, but the biggest downside is that it didn't provide a lot of hands on property experience, even after 12 years in the industry. I've got a very strong understanding of real estate fundamentals, but it's still been hard finding a new job.

That said, one of my in-laws is a pretty successful real estate investor, so I reached out to see if there's anything I could do to help him. He doesn't need any help on the equity investing side, but he mentioned that they've considered expanding into mezz lending so I'm trying to propose something that could be mutually beneficial since I still have a lot of relationships in the industry. 

He's probably got $20 - $30 million to allocate to this. While I'm generally familiar with mezz lending and had exposure to some investments years ago, I'm having trouble finding info on today's market terms (economics and structure). I also no longer have any access to that old info. While we'd obviously work with an attorney who could provide some guidance if I'm able to source some deals, I'd like to be able to share some insight with them now. 

Does anyone have suggestions on where to find info on where the market is today? 

With the help of a good attorney, I think we could make this work, but I'm open to any feedback or comments. 

Like I said, I've been recently laid off so I really need to get something going, but I don't want to make any foolish decisions.
[{"id": "dyz6cyv", "text": "In terms of structure, it's pretty straight forward.  SPE borrower that owns 100% of the equity in the mortgage borrower (or senior mezz entities), which equity is pledged as collateral for the loan.  I think economics is going to totally depend on the deal particulars.  Happy to answer any specific questions you might have.", "replies": [{"id": "dyz9oel", "text": "That's right. You're not going to get a 2nd deed of trust in most cases, so typically you'll have an assignment of interest that details cure rights, remedies etc. It's also documented with the 1st through an IC (inter-creditor agreement). Typically, none of these are recorded, meaning you better have a good attorney to document everything according to your jurisdiction.\n\nSizing - typically 10-25% of the stack. Last dollar is probably up to 80%. One way to manufacture the mezz is to do a high ltv whole loan and sell off the 1st.\n\nPricing - really depends. On class A institutional stuff, you'll see very low spreads in the high 200s... on B/C crap in the middle of nowhere (think limited service hotels), I'd imagine spreads to be in the 500-700 range.", "replies": [{"id": "dyzbm10", "text": "You mean 200 over base rate (LIBOR), right?\n\nI note that the fact that a mortgage is recorded doesn't mean you're okay with a lesser attorney; all that does is give priority over (most) subsequent claims.  It's not an assurance of anything.  You could crap on a piece of paper and, as long as it's got the right margins and whatever, record it.  Mezz does allow for a quicker foreclosure though, which is why I'm starting to see lenders asking for the equivalent of a mezz pledge for a mortgage loan.  ", "replies": [{"id": "dyzg1bh", "text": "Yea spread over an index. Could be a UST if it\u2019s fixed rate.\n\nYou\u2019re saying lenders are asking for both a DOT and a mezz pledge? I don\u2019t know why you\u2019d give that as the borrower. If you\u2019re saying in lieu of a DOT, I doubt that. I\u2019ve never done that and I lend about $1bn a year.", "replies": [{"id": "dyzmzph", "text": "I have seen Lenders ask for the equity pledge on top of the DOT and get it. From the Borrower\u2019s perspective it is not really a big give since the Borrower is an SPE with no other assets. \n\nThis can be an issue in some states like CA due to the single action rule. ", "replies": [{"id": "dyzpg96", "text": "I will second this. I am a high-ish leverage floating rate bridge lender and in most situations I get a pledge of the LLC. Not in California as you mentioned but most states. We generally lend 80% of cost and most of the time I don\u2019t get any push back. We generally waive the pledge if the borrower pushes hard enough. ", "replies": [{"id": "dz0okg3", "text": "On what basis do you see Borrower's objecting?", "replies": [{"id": "dz2r0lk", "text": "It only seems to be California based owners as they are not used to seeing the pledge in CA. I lend mostly on the West Coast so sometimes I get CA sponsors buying in Oregon or Washington that push back despite it being less important in those states.", "replies": [], "depth": 8}], "depth": 7}], "depth": 6}, {"id": "dyzrspi", "text": "That explains it-I lend mostly in California and all non recourse... interesting", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "dyzgaia", "text": "I just closed a transaction on a limited service hotel w/ mezz and a big renovation component.  Big hotel in a desirable market with a strong operator, good track record of similar deals, high net worth.  Roughly 600 bps on the mezz portion like you said.", "replies": [{"id": "dyzkuj4", "text": "Damn pretty spot on! Hotels are tough for us at this point in the cycle, especially all the new stuff without historicals. I like full service resort / major flags - did the Ritz in SF for example.", "replies": [], "depth": 4}], "depth": 3}, {"id": "dyzxu7u", "text": "I\u2019m on the BS lending side and a class B office in a primary market had mezz debt after our senior loan at L+ 700 with last dollar being at 70% LTV so idk who is giving mezz at 200.", "replies": [{"id": "dz014wu", "text": "We lost a deal where the 1st was sold to some to Asian banks at 80 bps that was 30% ltv. The mezz was low... they\u2019re out there my friend.", "replies": [{"id": "dz0gg0g", "text": "I don\u2019t doubt it, I\u2019m just more surprised. ", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "dyzjxw5", "text": "Can anyone elaborate on mezzanine versus preferred equity. I\u2019m seeing more and more nonbank lenders pop up who are taking the mezz piece. What\u2019s making it so attractive? And what are your typical deal terms? \n\nThanks. ", "replies": [{"id": "dyznfkp", "text": "Everyone and their mom has a debt fund now... it's driven by folks chasing yield - the returns just aren't there on the equity side anymore.\n\nPref equity and Mezz both have elements of equity and debt, which is why they're classified as hybrids. Oftentimes, a lender won't allow mezz, so you have to do pref equity. There are a lot of nuances, but it boils down to 1) subordination - the order goes 1st &gt; mezz &gt; pref &gt; common, and 2) security - mezz gets pledge of equity in the borrower, pref equity doesn't have any security.\n\nThe pref equity has a pref return, which can accrue if there's no CF to pay it (or even if there is change of control, the other equity typically still remains in the project but is perhaps diluted or loses decision power), whereas the mezz is a loan with interest payments, and nonpayment typically results in an EOD (event of default) and the mezz lender wipes out the equity.\n\nSome debt funds will do pref equity with \"debt-like\" features in order to get debt treatment (think large financial institutions that want debt treatment for regulatory purposes). These features include mandatory current pay of the pref and mandatory redemption, both regardless of CF (like an interest payment and a maturity date).\n\nPreferred equity is highly negotiated and less standardized, so it exists on more of a spectrum than mezz loans. mezz loans are more liquid, senior and have more security, so therefore cheaper.", "replies": [{"id": "dyzwyio", "text": "Now that\u2019s a world class answer.  Might have to reach out one day for your consulting.  Thanks again @neuropat", "replies": [{"id": "dz00yxo", "text": "Happy to help!", "replies": [], "depth": 4}], "depth": 3}, {"id": "dz0orwi", "text": "Just one nuance / correction here is that the pref has security insofar as it often has contractual rights (as you said), but that's much more difficult/cumbersome to enforce than the UCC process in foreclosing mezz.", "replies": [{"id": "dz0ov7v", "text": "It\u2019s still an unsecured instrument, isn\u2019t it?", "replies": [{"id": "dz0oyug", "text": "Yes, you're right.  I was more just highlighting that one of the primary differences is enforcement of remedies.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "dz0wawj", "text": "Thanks for the info. One of the things that concerns me is that there's plenty of capital available, so I'm not sure how easy it'll be for me to actually source opportunities. Do you think it's too saturated to place $20 - $30 million relatively quickly? \n\nI'm not sure if the nuances of mezz/preferred equity means I'm in over my head, despite my real estate background.", "replies": [{"id": "dz16eq8", "text": "Let me ask you this - what is your competitive advantage? Besides being an unknown entity, you\u2019re going to have an uphill battle.\n\nWe have a small bucket of debt fund money ($1bil+) and we are hard pressed to find deals. Banks are trading construction lending out for bridge lending and it\u2019s been a race to the bottom for the past 1-2 years", "replies": [{"id": "dz1dj7o", "text": "Our competitive advantage is that we can do it without adding much infrastructure and we're capable of stepping in to the equity position. We can also act quickly because the principals are the decision makers. \n\nWe also don't have a lot of capital to put to work (relatively speaking), so we can pursue smaller deals.\n\nThat being said, I've read through plenty of pitch books in my career, so I know these are somewhat common competitive advantages. This is family money though, not investor capital, so there's not the same pressure to put money to work. ", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}]