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Subordinate debt: Discussing the opportunities in mezzanine debt and structured financing
- May 1, 2023: Vol. 35, Number 5

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Subordinate debt: Discussing the opportunities in mezzanine debt and structured financing

by Stephen Stuckwisch, Kevin Stone and Lucas Tiberi

Throughout the 2010s and through mid-2022, interest rates hovered around record low levels. Starting in January 2009, the target federal funds rate dropped to zero and, after being raised briefly to 2.5 percent in a gradual hiking cycle from 2016 to 2018, the onset of the COVID-19 pandemic dropped rates back down to effectively 0 percent. With the rapid rise of global inflation, central banks worldwide have taken it upon themselves to raise interest rates at record paces throughout 2022 and into 2023. As of March, the target federal funds rate is at 4.75 percent to 5.0 percent, an increase of 475 basis points in 12 months. The steep interest rate increases by the Federal Open Market Committee have affected many aspects of the U.S. and global economy, and real estate is no different.

Dislocation in real estate financing has become widespread because of the increase in borrowing costs. Without sufficient net operating income to cover debt costs, some owners of real estate are f

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