CRE-Finance LLC Clarifies That A Mezzanine Loan Is Personal Property, Not Real Property

A mezzanine loan is a loan that is secured by the membership interests of a LLC.

This is really juicy gossip. A mezzanine lender is foreclosing on a $100 million mezzanine loan that is secured by the largest apartment complex in New York City.

You will recall that a mezzanine loan is not a real estate loan. Instead, a mezzanine loan is a loan that is secured by the membership interests (think shares) of a LLC (think corporation) that owns a huge real estate project. If you own all of the company and the company owns all of the property, then you own all of the property, explains Todd Tretsky of Commercial Real Estate Finance LLC.

Why would a lender make a mezzanine loan, rather than just a normal mortgage loan? The answer is speed. It can take up to 18 months to foreclose a mortgage in New York. A lender can foreclose on the membership interests of a limited liability company in just 30 days, because membership interests in an LLC are just chattel (personal property), not real estate.

The law merely requires that the lender seize the membership interests without breaching the peace and that it conduct the sale in a commercially reasonable manner; i.e., in a manner in which such property is usually sold.

So far, so good? So how then are mezzanine loans ever made?

The mezzanine lender signs an intercreditor agreement with the underlying first mortgage holder, whereby the first mortgage holder agrees not to disturb the mezzanine lender, if the mezzanine lender forecloses, as long as the mezzanine lender keeps the first mortgage current.

If you have questions regarding mezzanine loans, are seeking commercial financing or have questions regarding commercial real estate, please call our professionals at 855-515-5515. Ask for Rich or Todd Tretsky or you can visit our website at