The Real Deal

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Gap financing to the rescue

From the May issue: Real estate experts are speculating that some form of gap financing may be integral to the recovery of the commercial mortgage-backed securities (CMBS) market, and ultimately the overall real estate market. Gap loans were originally used to cover (or "bridge") the difference between a construction loan and a permanent loan. Then, in recent years, it became common for developers to put up only one small piece of the equity in a deal, with at least one other entity putting up the remainder, or "gap" piece, on top of the senior debt. Companies have been forming in recent months to provide various forms of gap financing, experts said. For example, Basis Investment Group formed in February as a provider of both gap equity and of mezzanine loans, among other classes of debt.
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