If you’re in the commercial real estate industry, you’ve probably heard the term “Pari-Passu mortgage” thrown around. But what exactly does it mean and how does it work?
At GILKO CAPITAL, we specialize in helping our clients find the best financing solutions for their commercial real estate projects. In this article, we’ll take a closer look at the Pari-Passu mortgage and explore when it might be the right option for your needs.
What is a Pari-Passu Mortgage?
A Pari-Passu mortgage, also known as a pari-passu loan, is a type of commercial real estate loan that is structured so that all of the lenders have equal priority in receiving payments from the borrower. In other words, if there are multiple lenders involved in a project, each lender is on equal footing when it comes to collecting on the loan.
This is different from a traditional commercial real estate loan, where one lender typically holds the first lien position and has priority over other lenders if the borrower defaults on the loan.
In a Pari-Passu mortgage, each lender typically receives a pro-rata share of the payments based on their percentage of the total loan amount. This means that if there are two lenders, each lender would receive 50% of the payments, assuming the loan is split evenly between them.
When Might a Pari-Passu Mortgage Be a Good Option?
There are several situations in which a Pari-Passu mortgage might be a good option for a commercial real estate project. Here are a few examples:
Large projects with multiple lenders:
If you’re working on a large commercial real estate project that requires a lot of financing, it’s not uncommon to have multiple lenders involved. In this case, a Pari-Passu mortgage can help ensure that all lenders are treated equally and have a better chance of collecting on their investment.High-risk projects:
If a project is particularly high-risk, lenders may be hesitant to get involved unless they can share the risk with other lenders. A Pari-Passu mortgage can help spread the risk across multiple lenders, making it more attractive to investors.Joint ventures:
If you’re working on a project with a partner or partners, a Pari-Passu mortgage can be a good option to ensure that everyone involved has equal priority in receiving payments.
At GILKO CAPITAL, we understand that every commercial real estate project is unique and we work with our clients to find the financing solutions that best meet their needs. If you’re interested in learning more about Pari-Passu mortgages or other types of commercial real estate financing, contact us today to speak with one of our experts.
