Mezzanine Finance for Property Developers

How mezzanine finance works

Mezzanine finance is subordinated debt. It ranks behind the senior first mortgage and ahead of the developer's equity. Because it carries more risk than senior debt, it is priced higher, but it can materially reduce the equity a developer must contribute.

Illustrative example

Hypothetical figures to show the mechanics only. They are not an offer or a reflection of any actual deal.

Total development cost	$40.0M
Senior loan at 65% of TDC	$26.0M
Developer equity needed with senior only	$14.0M (35%)
Mezzanine at 15% of TDC	$6.0M
Developer equity needed with senior + mezzanine	$8.0M (20%)
Equity freed for other projects	$6.0M

The trade-off is a higher blended cost of funds. Mezzanine works when the project margin can carry that cost with room for a downside case.

Key terms

Security	Second registered mortgage, with a priority or intercreditor deed with the senior lender
Position	Behind the senior lender, ahead of equity
Combined facilities	We can provide senior and mezzanine together as one structured facility
Borrower	Established company borrowing for business or investment purposes

When mezzanine makes sense, and when it doesn't

It suits experienced developers with a sound feasibility who want to preserve capital. It does not suit thin-margin projects where the extra cost leaves no buffer. In the current market, stretched mezzanine on thin equity is harder to place; we will tell you early whether the stack works.

What to send for indicative terms

• Property address and a short project or asset description
• Total development cost or purchase price, and current valuation if held
• Loan amount requested and the position in the capital stack
• Planning status (for example DA approved) and builder, if construction
• The exit: sales, refinance or settlement, with supporting evidence
• Borrower entity and a short summary of the sponsor's track record

Frequently asked questions