When Construction Costs Exceed the Amount of the Construction Loan

question 22

Multiple Choice

When construction costs exceed the amount of the construction loan, a developer may seek to cover the gap using mezzanine financing. All of the following statements regarding mezzanine debt are true EXCEPT:

• A) Mezzanine debt use is less expensive than normal construction financing
• B) Mezzanine debt use avoids dilution of equity returns
• C) Mezzanine debt use is less expensive than equity financing
• D) Mezzanine debt use avoids the foreclosure process in the case of default

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Definitions:

Scope of Project

The boundaries and extent of what a project will cover, including its goals, deliverables, tasks, and resources.

Funding

The act of providing financial resources to support a program, project, or organization.

Current Situation

The present state or condition of something, often referring to specific contexts or events.

Cover Letter

A document sent with a resume to provide additional information on one's skills and experience, typically a summary of why the applicant is suitable for the position.