Mezzanine financing is financing that is junior in interest to the mortgage but senior in interest to equity. Mezzanine financing has a similar risk and return profile to preferred equity, however operational mechanics and legal enforcement differ between the two. Mezzanine financing is typically secured by a pledge of the equity interests in the legal entity (usually a limited liability company or partnership) that owns the underlying property. Thus, mezzanine financing is only indirectly secured by the property. Similar to other loans, mezzanine financing typically has a stated fixed or floating interest rate and a specified maturity date and these terms are detailed in mezzanine loan documents. In the event of a breach or default, the mezzanine lender may enforce its pledge of equity in the ownership entity through a UCC sale or foreclosure.
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Investing in alternative assets involves higher risks than traditional investments and is suitable only for sophisticated investors. Alternative investments are often sold by prospectus that discloses all risks, fees, and expenses. They are not tax efficient and an investor should consult with his/her tax advisor prior to investing. Alternative investments have higher fees than traditional investments and they may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss or gain and should not be deemed a complete investment program. The value of the investment may fall as well as rise and investors may get back less than they invested.
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