GlobeSt.com: Why all the interest in mezzanine debt by investors and lenders now?

Webb: A lot of the old equity investors have shifted to mezzanine because the returns are pretty good – 18% -- and it is still not as high up in the capital stack.

GlobeSt.com: What does this mean for deals? I know credit is all but frozen, but if there is a shift to mezzanine among the few lenders that are active, how is that affecting equity or senior debt, for instance?

Webb: On the equity side you can still find some providers, but these deals would need to be a slam-dunk for the company. That means great sponsorship and much higher returns. There needs to be a huge upside now to get equity for a deal today.

GlobeSt.com: And senior debt? I know it is much scarcer than even a month ago. Since there is so much mezz money, is it stepping in to fill that gap?

Webb: It is true about senior lenders. With CMBS out for now, those companies that do have capital to lend -- money banks and life insurance companies, for instance – can be very choosey. The result has been a gap in financing for most projects that are up for recapitalization right now as well as for acquisitions. The senior loan proceeds are so low from these traditional sources that people are making up different with mezz debt.

GlobeSt.com: If these projects are getting loaded up with mezz debt, do you think we will be facing another crisis a few years down the road when these loans come due?

Webb: I don't know if I would use the word crisis, but yes, I do think we will run into some problems if the capital markets haven't improved. Borrowers using this high-octane money are doing so with the hope that the capital markets will turn around within the next few years.

GlobeSt.com: I take it, though, credit is still tight for borrowers despite the availability of mezz money?

Webb: Oh yes. Proceeds are lower, terms are stricter. And not all projects can be financed even under those circumstances. Mezz debt for new construction, for example, is very hard to find. The general feeling is that the more cash flow and coverage on a property, the more mezz providers are willing to support a deal.