Tranche Warfare

LePatner & Associates founding partner Barry LePatner, meanwhile, said mezzanine lending had all but dried up in the city, primarily because developers are now being required to put up as much as 50 percent equity in order to qualify for construction loans—a costly sum that becomes even more expensive when construction cost overruns are accounted for.

Mr. LePatner and other real estate executives added, however, that mezzanine lending would return, especially in growth sectors like education and the real estate–intensive health care industry, which is expected to satiate a need for more real estate as baby boomers age.

Real estate experts predicted that office investment funds like Beacon Partners, Shorenstein Properties and Tishman Speyer would all surface as mezzanine debt holders, while others, like the Blackstone Group, AREA Property Partners, Starwood Capital and Colony Capital, would continue to provide similar junior loans.

“If I’m a mezzanine lender, I’m thinking about what I’m going to do when I want to lend, or what’s the best way to maximize my investment but minimize my risk,” said Mr. LePatner. “You exist to lend money, so you go to the sectors of the economy where you can get the best returns on investment. You exist to lend.”

jsederstrom@observer.com

Tranche Warfare