Glossary

Mezzanine finance

What mezzanine finance is, how it ranks against senior debt and equity, and when a developer reaches for it.

Mezzanine finance sits between senior debt and a developer's own equity in a project's capital stack — subordinate to the senior construction or first mortgage lender, but ranking ahead of the developer's equity if the project underperforms. It typically bridges a gap where senior debt alone will not cover a project's full cost and the developer does not want to, or cannot, contribute the additional equity required. Because it carries more risk than senior debt, mezzanine finance is priced higher, and lenders assess it closely against the project's margin and the senior lender's own terms, usually documented through an intercreditor or deed of priority arrangement between the two. For a borrower, mezzanine finance can preserve equity and control of a project, but it adds a second layer of cost and reporting obligations sitting alongside the primary construction facility.

Related

Mezzanine & preferred equity · Preferred equity · Intercreditor

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