Mezzanine Financing Guide

Mezzanine finance sits between senior debt (first mortgage) and developer equity in the capital stack. It typically carries higher interest rates than senior debt (12-16% p.a.), reflecting its subordinate position, but allows developers to reduce their equity contribution or take on larger projects. Interest is usually capitalised during the development period.

Mezzanine financing is particularly valuable when you want to preserve capital for multiple projects, your project requires more leverage than senior lenders will provide, or you see opportunities to enhance returns through reduced equity deployment. It can also bridge feasibility gaps when senior debt alone doesn't provide sufficient funding.

We work with specialist mezzanine providers who understand development projects. Facilities can be structured with capitalised interest, profit participation, or hybrid arrangements depending on project characteristics. The total leverage (senior + mezzanine) typically reaches 80-85% of project costs.

Mezzanine rates typically range from 12-16% p.a. plus establishment fees. While more expensive than senior debt, the cost must be weighed against the return enhancement from deploying less equity. A well-structured mezzanine facility can significantly improve developer IRR despite the higher borrowing cost.