he evolution of commercial real estate finance on Wall Street and beyond has opened new doors for loan structures that enable borrowers to optimize objectives and create portfolio stability. Today, sophisticated borrowers can take a truly surgical approach to financing their projects, constructing each loan to suit the nature of an individual property.

In many ways, the direction of the commercial mortgage market is tracking the residential financial market -- on fast forward. The number of alternatives available to homeowners has increased exponentially during the past 20 years, evolving from standard 30-year fixed rate loans to a variety of different structures. Commercial mortgages are following suit at a much more rapid rate.

Just a few years ago, borrowers could choose from only three or four standard mortgage programs. Now, from Wall Street and the larger institutional banks, to S&Ls, to Fannie Mae and Freddie Mac, to regional commercial banks, to life insurance companies, the myriad of options has grown tremendously. Each provides unique attributes that can be beneficial in different situations. For example, local sources tend to consider the merits of the immediate market or the project itself, while larger institutions, and more traditional lending operations often provide longer term, fixed-rate solutions, frequently with more. structural complexity.

For inherently conservative organizations like Kushner Companies -- that traditionally seek long-term, mortgages with significant amortization -- the life insurance companies, along with Fannie Mae and Freddie Mac (for multifamily purchases) have become particularly attractive. At the same time, Wall Street continues to offer new alternatives that mimic the benefits of fully amortizing loans.

During the past few years, the industry has seen a considerable increase in the number of securitized mortgages. This traditionally residential financing method that places loans in a trust and sells them as bonds first, significantly entered the commercial market in the early 1990s with the RTC. Through the past decade, securitization's profile has dramatically increased. The cost of capital enjoyed through the securitization market has made this alternative increasingly competitive with traditional lending sources.

Mezzanine financing represents another significant area of growth during the past several years. This type of financing, often referred to as preferred equity or mezzanine debt, is secured by the existing equity in the property and is subordinate to the first mortgage. It can be ideal if prepayment on an existing first mortgage is either legally prohibited or has high prepayment penalties, yet provides an attractive loan-to-value ratio. Mezzanine financing often provides a valuable tool for bringing a property back to a more typical level of leverage.

For example, Kushner Companies is currently looking at an acquisition opportunity with a relatively low loan-to-value ratio and an existing first mortgage that is prohibitive to refinance. We want to launch a significant capital improvement program to bolster property performance. We plan to buy the property with mezzanine financing and subsequently invest almost 20 percent of the purchase price in improvements such as a health club, dramatic lobby and hallways and elevators. In a few years, when the property has stabilized at the expected higher rental income, we will be able to refinance both the first mortgage and the mezzanine loan with traditional, long-term financing.

Larger companies with strong track records as "premium" borrowers are particularly well-positioned to take advantage of today's best financing opportunities. Major privately held players like Kushner Companies also often enjoy the benefit of "patient capital," or the financial ability and flexibility to invest in properties that may be dilutive in the short-term, but promise significant long-term profitability.