

Preferred Equity Funding (Mezzanine) Funding
Mezzanine Capital is usually provided to Developers as a subordinated debt or Preferred Equity Instrument that represents a future claim on a Company's assets which is senior only to that of the common shares.
Mezzanine financings are common in property developments to bridge the gap between the costs of a development versus the available senior debt and equity contributions from the development company. Such facilities can be structured either as debt (typically an unsecured and subordinated note) or alternatively as preferred stock (i.e. shares in the company or profit share).
Mezzanine Capital is a more expensive financing source for a Company than is any secured Senior or Bank Debt (i.e. Construction Funding) due the higher level of risk associated with providing the funds and can vary even further depending on the development project type, its location, the experience of the Company operators and the terms of any Senior Debt facilities.
Mezzanine financings can be completed through a variety of different structures based on the specific objectives of the transaction and the existing capital structure in place at any Company. The basic forms used in most mezzanine financings are subordinated notes and preferred stock. Mezzanine lenders, typically specialist mezzanine investment funds, look for a certain Rate of Return on any given transaction which can come from either or all of the following methods:
1. Cash Interest - Being a periodic payment of cash based on a percentage of the outstanding balance of the mezzanine financing. The interest rate can be either fixed throughout the term of the loan or can fluctuate (i.e., float) along with LIBOR or other base rates.
2. PIK interest - 'Payable-in-Kind' Interest is a periodic form of payment in which the interest payment is not paid in cash but rather by increasing the principal amount by the amount of the interest
3. Project Ownership - Along with the typical interest payment associated with debt, mezzanine capital will often include an equity stake in the form of attached warrants or a conversion feature, similar to that of a convertible note or bond. The ownership component in mezzanine securities is almost always accompanied by either cash interest or PIK interest and in many cases by both.
Mezzanine Lenders will also often charge an arrangement fee, payable upfront at the closing of the transaction. Arrangement fees contribute the least return and are aimed primarily to cover administrative costs and as an incentive to complete the transaction.
Viking has forged strong relationships with a number of Mezzanine Funding Entities and we can assist property developers with sourcing Mezzanine or Preferred Equity for any decent property project.