A lot of real estate brokers, agents, dealers and investors get confused when the word Mezzanine loan is used. They think that it is a 2^nd position commercial mortgage against a commercial property but it is not like that.

A mezzanine loan, also called Mezz loan, is a type of commercial loan which is used to finance big projects like shopping malls, towers and hotels etc. Mezzanine loans are generally of at least $3million behind the first mortgage of about $8 million. This clearly identifies that small projects and residential properties cannot qualify for that as the amount is really huge.

Mezzanine loans are generally used by the developers of the huge projects to get the supplementary finance where the primary loans require large financing. In Mezzanine loans the property of the lender is not kept as a security but the assets and stock of the developing company are collateralized. Mezzanine finance offers low risk and high opportunity for the investors. Why the risk is low? A clear answer to it is that the holder can easily convert the collateral into equity and get his finance. Moreover, the interest rate is so much high that there are huge chances of making profit.

According to recent reports about the Mezz loans in the past year it has appeared that the interest rates of the Mezz loans have declined. This decline is due to the fact that the Mezzanine loans did not suffer any losses. They are quite secured and the Mezz loans are very successful therefore the borrowers ask to reduce the loan interest to which the Mezz loan lenders agreed.

Mezzanine loans have really become famous in commercial real estate sector all around the world. Companies list Mezzanine loans in their balance sheet as an asset. However, the interest rates of Mezzanine loans are still higher than the conventional mortgage loans but companies find it really easy to obtain loans for their various commercial real estate construction projects.