Reading a mezzanine quote on a five-property refinance where the cross-collateralization is the real risk

A blended 7.9% against a 6.4% trailing yield is negative leverage, and the 4% rent growth assumption is doing all the work in that model. Run it at 1.5% and see what year three looks like. The cross is the second problem. The first thing to check is whether the mezz lender will release a property from the pledge on a sale, and at what release price. There is usually a release provision, and it is typically priced at 115 to 125% of the allocated loan amount. If a release is available at a number you can live with, the cross stops being fatal, because you keep the option to sell the weak building later, when you are not the third listing. If there is no release language, that is the clause worth fighting over before arguing about the exit fee.

Seconding the release question. Also look at what the exit fee of 2% of original principal payable at any payoff does in combination with the extension options. Extend twice and pay off in year five and you pay the same 2% you would have paid at month 13, so the effective annual cost of that fee falls the longer you stay. That is the lender telling you they do not want to be refinanced out early. Worth knowing what their prepayment lockout is too, since a 2% exit plus a yield maintenance period can add up to a much longer commitment than three years.

I'd sell the weak building. Not because the mezz terms are bad, they look like ordinary market pricing for that position. You're describing a building with a unit mix that doesn't match the submarket, which means the fix is capital you don't have, and mezz debt is the most expensive money you could possibly use to hold something you've already decided is wrong.

Four months of marketing is a known cost. Three years of 13% money against a building that isn't going to lease up is not.

@marcus_hale41 the sale math only works if the number in front of you is real. @brandonlee36 said appraises, which is not the same as a signed contract with a buyer who has financing. A third similar listing in a metro suggests those appraisals are trailing the bids. Worth running the case nobody has mentioned: sell the weak building and take a smaller mezz piece on the rest. Smaller pledge, lower absolute carry, and the reserves still get covered. A blended cost lands somewhere above the underlying yield by rough math, but the gap can be small enough that ordinary rent growth closes it instead of needing an aggressive assumption. @dpatel_re is right that the release provision is the clause to read. But it is also worth knowing whether the current pay is coming entirely out of property cash flow, and whether the mezz has a cash sweep trigger. If a DSCR test at the holdco level sweeps distributions, equity gets nothing for the full term even when the deal is performing, and that changes whether the structure is worth doing at all.