Mezzanine debt sits between the mortgage and the equity, secured by a pledge of the equity interests in the property-owning entity.

Why structured this way. A second mortgage would require the first mortgagee’s consent and would complicate foreclosure. A pledge of equity is foreclosed under commercial code procedures in weeks rather than months, and the mezzanine lender takes over the owner of the property rather than the property.

Foreclosure. A public or private sale of the pledged interests, conducted in a commercially reasonable manner, with notice requirements. The purchaser becomes the owner of the entity subject to the mortgage.

Intercreditor agreement with the mortgage lender is the governing document: standstill periods, cure rights for the mezzanine lender on mortgage defaults, notice obligations, consent to transfer on foreclosure, qualified transferee and replacement guarantor requirements, and limits on modifications to the senior loan.

Single purpose entity structure required, with independent directors and separateness covenants, so that the borrower is bankruptcy remote.

Preferred equity as an alternative, with rights exercised through the operating agreement rather than through foreclosure — faster in some respects and less certain in others.

Pricing reflects the subordinate position, and the intercreditor terms materially affect it.