Can suit larger property projects where senior debt does not cover the full requirement.
Mezzanine Finance
Mezzanine finance for property-backed projects
Mezzanine finance can provide an extra funding layer behind senior debt where a property project needs more leverage and has a credible exit.
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Senior debt terms, borrower contribution, project costs, GDV and security ranking usually matter.
Mezzanine is usually more expensive and more complex than senior debt.
Where mezzanine finance may fit
Mezzanine finance may fit where a property-backed plan has senior debt in place or proposed, but the senior facility does not cover the full funding requirement. It can be relevant for development projects, refurbishments, commercial property purchases or structured property transactions.
The facility usually sits behind senior debt, so the security ranking, lender consent, cost and exit route need careful review.
What lenders usually look at
Lenders may review the senior facility, total project cost, borrower contribution, loan-to-cost, loan-to-value, gross development value, property type, planning position, borrower experience and exit strategy.
They may also consider whether the senior lender allows mezzanine debt, what security is available and how repayment will work if the project takes longer than expected.
What helps the enquiry
Helpful details include property information, valuation, senior debt terms, cost schedule, planning documents, development appraisal, build programme, professional team, borrower accounts, proof of contribution and evidence supporting the exit route.
Because mezzanine is specialist, clear numbers and a credible exit route are particularly important.
Benefits and considerations
Mezzanine finance may increase the funding available for a viable project and reduce the cash contribution needed from the borrower.
It can also add cost and complexity. Borrowers should understand ranking, security, guarantees, exit timing and what happens if senior debt terms change. Funding is subject to lender criteria.
Mezzanine finance FAQs
Is mezzanine finance the same as a commercial mortgage?
No. A commercial mortgage is usually a senior or longer-term property facility. Mezzanine finance is normally an additional layer behind senior debt and is used where the borrower needs more leverage than the senior lender will provide.
Can mezzanine finance work with development finance?
It may be reviewed where the senior development facility does not cover the full project requirement and the senior lender allows the structure. The project margin, borrower contribution, security ranking and exit route are usually central.
What documents help with mezzanine finance?
Useful documents include senior debt terms, cost schedule, development appraisal, valuation, planning documents, project programme, borrower accounts, proof of contribution and evidence supporting the exit route.
What matters most for mezzanine finance?
The funding stack, borrower contribution, property value, project costs, exit route, senior lender consent and security ranking are usually important. Because mezzanine is higher risk than senior debt, cost and structure should be understood carefully.