Looking for some help on modeling a ground-up development deal that includes a mezzanine piece. Specifically, I don't understand how to model the reality that part of the mezzanine loan interest is current and part of it accrues.
Say we're in month 6 of construction and the mezzanine loan has been completely drawn down. The only source of funding coming in at that point is the senior construction loan. Would a portion of the senior loan draws fund the mezzanine current interest?
As of now I have the model set up the following way:
Equity funds first, then mezzanine loan, then construction loan. Once the building is operating, any available NOI is used to pay interest on the construction loan. If any NOI remains after that, it pays interest on the mezzanine loan. If any remains after that, it goes to equity. The interest on both the mezzanine loan and construction loan in my model is accruing, but I need to change the mezzanine, as I said, so that a portion of it is paid each month. At sale, loan proceeds pay down the construction loan, then the mezzanine loan, then go to equity.
After construction, what is typically done in development? Should I add in a bridge loan at completion of the project that would take out the construction and mezzanine loans, and then a permanent loan to refi out the bridge loan once the building stabilizes? Trying to be as accurate as possible here.
I don't believe that I have this set up accurately right now so I'd really appreciate some assistance with this. Thanks!