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119769 Resource 78777 78860 1071 1143144024687 1215923838199 Controlled Lockboxes and Commercial Real Estate Loans

Lockboxes Are Used by Junior Commercial Real Estate Lenders to Make Sure the Rents Are Used to Service the First Mortgage

Suppose you are a mezzanine lender poised to make a $3 million mezzanine loan behind a $20 million first mortgage on an office tower.  The payments on this senior loan are on the order of $200,000 per month, and if the payments aren't made, you will be wiped out. But first you think to yourself, "We'll be okay.  The office building generates $300,000 per month in net operating income (NOI).  There is plenty of money available to service the first mortgage and our $40,000 per month payment." But what if the owner develops a drug habit or a gambling problem?  What if he puts the monthly rents up his nose, and by the time you find out, he is ten months down on the mortgage?  Holy moly, that's $2 million in delinquent payments on the first mortgage that you will have to cure.  Yikes! This is why most mezzanine lenders require a lockbox controlled by the mezzanine lender.  Under a Lockbox Agreement, the rents will be paid to a post office box controlled by the mezzanine lender.  The bank servicing the lockbox will take the rents and use them first to make the first mortgage payment, plus any reserves required by the first mortgage lender.  Then the remaining rent will be used to make the monthly payment on the mezzanine loan. The balance of the net operating income will be distributed according to the Waterfall Agreement.  A waterfall agreement lays out how the remaining cash flow ill be distributed.  The waterfall may say that after the mezzanine lender gets his monthly payment, the owner gets a modest return on his equity.  Then any remaining cash flow may go to the mezzanine lender or might be split 50/50 between the owner and the mezzanine lender. You can apply to scores of mezzanine lenders using <a href="http://www.c-loans.com/onlineapp">C-Loans.com</a>. 9 application/xml false commercial financing commercial real estate loans lockbox mezzanine lender mezzanine loan structured finance waterfall C-Loans Commercial Mortgage Lender Databank Apply to Scores of Mezzanine Lenders in Just Four Minutes http://www.c-loans.com/onlineapp Mozilla/4.0 (compatible; MSIE 7.0; Windows NT 5.1; .NET CLR 1.1.4322; .NET CLR 2.0.50727) 127.0.0.1 127.0.0.1 johngaudio 216.87.92.57 false true false false true 198508 false false true false false false true 78777 blog blogsite/CLoans/web