US commercial property owners who may have been worried about being able to refinance existing mortgage debt earlier this year may find their situation vastly improved now. Credit markets have strengthened in recent months, and mezzanine debt has become a lot easier to find. As a result, some deals which would not have been workable a few months ago are now able to be restructured in a way that has put a smile on property owners’ faces.
The owner of the Fashion Outlets mall in Las Vegas, AWE Talisman, was in this situation earlier in the year. Credit markets were not strong enough to refinance the full $107 million in debt owing on the property.
A solution was found to refinance the 376,000 square-foot mall, though. Instead of borrowing all the funds needed for the deal from a single source, the deal was split in two parts: $32 million in mezzanine funding and a further $73 million in senior debt was put together into commercial mortgage-backed securities at terms the owner found very attractive.
Current investor demand for yield is quite strong in a market where interest rates are historically low. The result has been a boom in commercial mortgages, and conditions have not been this favorable since 2008.
The commercial-mortgage bond market is expected to see $46 billion in new issues this year. In 2013, the numbers will be even better, with issues expected to rise to as high as $65 billion.
In the last few months, the amount of mezzanine debt has also risen. The exact amount has not been tracked, but it has played a role in a number of high-profile transactions, including the refinance of the Extended Stay America hotel chain.
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