Mezzanine debt financing serves as a source of additional debt financing which sits in second priority behind the senior loan on the subject collateral property. This type of financing can provide investors and developers with some relief in terms of the size of their equity raise, but at a cost as mezzanine debt rates typically start in the low double digits.
Mezzanine debt is often utilized on heavy value-add and/or construction projects that expect higher returns and can support the cost of those higher interest rates on a component of the capital stack.
Advantages of Mezzanine Financing for Borrowers:
- Improve levered returns for investors and developers
- Typically more flexibility in the structure of interest payments, with a current pay component and accrued pay component
- Lower the equity raise amount
When to Consider Mezz Financing:
- Higher cost of capital
- Impact on project delays – potential need to replenish reserves
- Allowance for mezzanine financing by senior lender, and associated legal cost
Mandri Capital specializes in arranging mezzanine debt financing options for its clients. If you’re interested in learning more, please email for a confidential discussion at mfriedman@mandricapital.com.
