1st/Mezz Foreclosure

What happens to the mezzanine lender in the event that the 1st mortgage lender forecloses? Referencing this TRD Article about World Class Holdings defaulting on an Austin Business Park .

Facts (chronological order)

  • JPMorgan originates $71 million first mortgage in 2019 secured by the Property
  • JPMorgan originates $29 million mezzanine loan in 2019 and immediately sells the note
  • Karlin acquires the mezz note in 2021
  • Both senior/subordinate loans become due in 2021 ... but are not paid in full
  • JPMorgan and Karlin consider foreclosing ... but Karlin ultimately ends up acquiring the 1st mortgage "to salvage the investment."

Can someone explain to me why Karlin would acquire the 1st mortgage to "salvage the investment?" I am not very knowledgeable in real estate finance.

Comments ( 3 )

Most Helpful
6h
temujiin , what's your opinion? Comment below:

The mezz is fuk.

If the senior mortgage lender is foreclosing then the mezz is wiped out.

The mezz lender bought the senior loan likely so they can continue the foreclosure process, take ownership of the asset, and attempt to realize value that they think is in excess of the price they paid for the senior loan.

  • Associate 1 in RE - Comm
3h

temujiinThe mezz is fuk.If the senior mortgage lender is foreclosing then the mezz is wiped out.The mezz lender bought the senior loan likely so they can continue the foreclosure process, take ownership of the asset, and attempt to realize value that they think is in excess of the price they paid for the senior loan.Well done

  • Analyst 1 in RE - Comm
10m

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