Part I of this article took a broad look at changes and similarities in commercial real estate finance structures and relationships over the past 20 years. Part II of this article will cover changes in the capital stack, loan workouts, nonrecourse carveout guaranties, dual collateral pledges, and lender liability.

The capital stack has always started with mortgages. It expanded to include mezzanine loans. Going beyond that, preferred equity, even more opportunistic, has become a far more prevalent financing form than it was 20 years ago. Commercial real estate mortgage “loans” (whether to capture return on investment, or equity) are now often structured as preferred equity in the sponsor entity. Indeed, in some hybrid transactions one private equity “lender” makes a mezzanine loan to the members of the entity and its affiliate acquires preferred equity in the sponsor.

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