Question 1

Why do LA commercial mezzanine lenders prefer UCC equity pledge foreclosure over California judicial foreclosure?

Accepted Answer

California judicial foreclosure takes 18-24 months and requires court proceedings, while a UCC Article 9 equity pledge foreclosure of LLC or LP interests can be completed in 30-60 days. The speed difference is extraordinary. California's Dreaded Anti-Deficiency Statutes (CCP §580b and §580d) also affect first mortgage lenders' recourse options - mezzanine lenders using UCC enforcement are in personal property territory, not subject to California real property anti-deficiency law. This gives mezzanine lenders in California genuinely more enforcement power than first mortgage lenders in many scenarios.

Question 2

What is a typical Los Angeles commercial mezzanine loan size?

Accepted Answer

Los Angeles commercial mezzanine loans generally appear on transactions above $30M. The mezzanine position is typically 10-20% of total project capitalization, sitting between the senior mortgage (55-65% LTV) and the equity (20-30%). On a $100M LA office tower, the mezzanine might be a $15-20M loan at 10-12% interest rate. Mezzanine loans on smaller LA commercial properties ($5-30M) are less common - below that size, lenders prefer senior bridge debt structures without mezzanine layers.

Question 3

What happens to existing LA commercial tenants when a mezzanine acceleration occurs?

Accepted Answer

Existing commercial leases survive a UCC equity pledge foreclosure - the buyer acquires the property-owning entity with all of its contractual obligations, including existing leases. Tenants' rights are not affected: they continue paying rent to the same building management and have the same lease terms. This is a significant advantage of UCC equity pledge foreclosure over real property foreclosure for tenants - their leases are not disturbed. Buyers should review all tenant lease agreements and any SNDA (subordination, non-disturbance, and attornment) agreements before bidding to understand tenant rights vis-a-vis the new ownership.