When we hear mezzanine, the first thing that pops to mind is another level. This is very true, and directly applies to a financing structure as well. Finding mezzanine is very tricky, and my hope today is to help you be proactive in identifying the best company to choose.
Step 1: Run your proforma model.
It is crucial that you have a financial model showing all the cash flows, expenses month by month. Do a proforma for, at least, 1 year to show how the project will fare given certain conditions. This matters because you might not have enough cash flow to support mezzanine financing. If this is the case, then you either have to a) scratch the idea of using mezzanine financing, or b) change your structure to make sure it does not kill your project.
Step 2: Put terms together that meets your modeling.
Come to the marketplace with your ideal scenario, as it will guide your conversations. This will also help you end conversations in a hurry. Remember time is of the essence and you can only have so many conversations. If a company says their rates are 13% and you can only accept 10%, then no need to go further. Know what you need/want as this will help streamline whom to choose.
Step 3: Choose someone that aligns with your core values.
This might seem a like a sixth grade problem, but its really a big deal. The last thing you want to do is get hitched to a wagon that runs opposite of your core convictions. Doing this, will assure you have a lot of anxiety and potentially sleepless nights. Ask good questions about their other projects, and listen for cues of integrity.
Step 4. Talk to people that can make references.
The best way to find out who the best is and talk to people who know the industry. Block out time to investigate commercial mortgage brokers who can advise you on your journey. Paying for good consultants can save you a lot of headache, and realistically money lost. Ask about their process? Ask about the history of projects they have done? Ask about how they would approach your project? Gather a lot of information and choose one, which suits your value system.
Step 5. Have good questions about details.
There is a lot involved in obtaining mezzanine financing. Ask about their process of approval? What are their fees, going in and going out? How much is legal? How many third party reports do they need (appraisal, environmental, property condition assessment, survey, etc)?
Mezzanine financing can be very challenging, especially if it is new construction, or a smaller project. Make sure you consult with someone to assure you are heading in the right direction. Please contact a representative with Integrity Capital, LLC at 480-219-1205 for further discussion regarding this topic.