When Construction Costs Exceed the Amount of the Construction Loan

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