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:

Course of Action

A plan or strategy designed to achieve a particular goal or to solve a specific problem.

Critical Decision

A significant choice or judgment that can have a profound impact on the direction or outcome of a process or project.

CAD System

Computer-Aided Design (CAD) System refers to software used by engineers, architects, and designers to create precision drawings or technical illustrations.

Product Development

The process of conceptualizing, designing, creating, and bringing a new product or service to the market.