Contact Us

Mezzanine Loan Foreclosure Notices Spike To Highest Level In 15 Years

Lenders have issued a record number of foreclosure notices on risky commercial real estate loans this year, a clear indicator that the sector is in serious trouble, according to a new analysis.


Lenders issued at least 62 foreclosure notices on mezzanine and other high-risk loans through October, more than double the number for all of last year and likely the highest total for a single year, according to The Wall Street Journal.

Mezzanine loans, similar to second mortgages, have higher interest rates and a faster and easier path to foreclosure than other loans. This offers a quicker measure of commercial real estate distress than traditional commercial mortgage foreclosures, which usually take months or even years from the point of default to foreclosure, the WSJ reported.

Since mezzanine loans don’t appear in property records, they are harder to track, and the WSJ was unable to determine the total dollar amount from the 62 foreclosure notices.

But the analysis, which counted foreclosure sale notices for commercial property loans in print editions of dozens of national and regional newspapers going back 15 years, shows a stark difference in the number of mezzanine foreclosure notices before and since the pandemic began. Three notices were issued in 2018. That jumped to 13 in 2019, 27 in 2020 and 41 in 2021 before the number dropped back down to 30 in 2022.

Mezzanine lenders including BlackstoneKKR and Starwood Capital collectively lent billions, largely starting in the decade following the Global Financial Crisis as traditional lenders became more conservative.

Lenders were attracted to the loans due to their high interest rates, often over 10% when long-term government bonds saw interest rates as low as 2%.

A spate of mezzanine lending inflated commercial real estate values in the lead-up to 2022, the WSJ reported. With those values now falling and average interest rates rising from between 10% and 12% to more than 15%, properties are harder to refinance, sending defaults and foreclosures higher.

“A lot of borrowers have basically said, ‘I can’t hold this asset any longer. I can’t keep putting money in,’” Terri Adler, managing partner at law firm Adler & Stachenfeld, told the WSJ. “And the lenders have said, ‘OK, we’ll take it back.’”

Mezzanine foreclosures this year include Korea’s Hana Financial Group taking control of the land under 20 Times SquareMarriott’s 452-room Times Square Edition. Hana took control of the fee interest and told French Bank Natixis, the owner of the building, that its 99-year ground lease would be terminated if it didn’t clear $39M in mechanical liens within 30 days, according to a lawsuit.

In late September, Hana took ownership of the ground lease after foreclosing on a mezzanine loan tied to the property, PincusCo reported. 

Margaritaville Times Square faced a similar fate last month. Sharif El-Gamal's Soho Properties lost its stake in the 234-room hotel it helped develop, which ended up having more debt at $371M than the building’s appraised value of between $226M and $350M. 

The original mortgage was $167M, according to the WSJ, with additional debt including a $57M mezzanine loan.