With the crime rate on large commercial loans tied to real estate in the US nearly doubling in just a month, large banks, which are among the largest real estate lenders, have generally been willing to give home owners time to negotiate with tenants clarify. A class of smaller lenders are showing impatience.
These lenders, which include hedge funds and private equity firms, have provided so-called billions of dollars Mezzanine financing Assisting hotel, retail complex and office building owners in running their businesses.
There have been some high profile battles already. In May, after the Mark Hotel, one of Manhattan’s most luxurious hotels, missed multiple payments, a California private equity firm decided to close its $ 35 million mezzanine loan. A New York judges blocked Attempting to bring the lawsuit was not justified and not “economically reasonable” during a pandemic.
Unlike traditional mortgage lenders whose loans are backed by real estate, mezzanine lenders give out loans that can be converted into a stake in the business if the owner cannot pay the mortgage and not the property itself. Hence the “mezz” – Lending, which usually pays high interest rates, is both riskier and more rewarding for investors.
A foreclosure is a way for a mezzanine lender to offset potential losses by arranging for the sale or auction of a defaulted loan and its participation in a borrower’s business. If no bidder appears, the mezzanine lender can crowd out the borrower and take over as owner or developer. Judges tended to side with mezzanine lenders in foreclosure disputes, but the pandemic has led some judges to be more sympathetic to financially stressed borrowers.
The New York Court’s rulings on whether it is appropriate for mezzanine lenders to foreclose borrowers during the pandemic are especially important, as New York law is often crucial in resolving disputes between lenders and borrowers.