Debt Fund
Private investment funds that originate commercial real estate loans, typically focusing on bridge, mezzanine, or higher-risk transactions that traditional lenders avoid. Debt funds offer flexible terms, quick execution, and higher leverage but at higher interest rates. They are valuable for transitional assets, value-add strategies, and complex capital structures.
Related Terms
Bridge Loan
Short-term financing (typically 1-3 years) used to "bridge" the gap between acquisition/repositioning and permanent financing. Bridge loans are ideal for value-add strategies, lease-up, renovation, or properties that don't qualify for traditional permanent financing. They feature higher rates and more flexible terms than permanent loans.
Mezzanine Debt
Subordinate financing that sits between senior debt and equity in the capital stack, secured by a pledge of ownership interests rather than a mortgage on the property. Mezzanine debt allows borrowers to achieve higher leverage (up to 85-90% of cost) while keeping the senior loan in compliance. Rates are higher than senior debt but lower than equity returns.
Preferred Equity
An equity investment that receives priority distributions before common equity but after debt service. Preferred equity provides additional capital above senior debt limits with returns typically in the 10-15% range. Unlike mezzanine debt, preferred equity is not secured by a pledge of ownership and has different foreclosure remedies.
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