Stretch the debt, protect the equity.
Subordinated capital from £250k to £15m sitting behind your senior facility, across the UK and Europe, taking combined leverage to 80% of GDV. When it earns its cost, when it does not, and how the intercreditor actually works.
What is mezzanine finance?
Mezzanine is a second layer of debt secured by a second charge behind your senior development or bridging lender. The senior facility might take you to 65% or 70% of GDV; mezzanine tops the stack up to around 80%. The difference comes straight off the equity you need to put in.
It is priced for the position it holds. If a scheme underperforms, the mezzanine lender loses money before the senior lender does, and the rate reflects that. Treating mezzanine as expensive senior debt is the wrong frame; it is cheap equity. The comparison that matters is not 1.35% per month against 8% per annum, but against the returns the released equity can earn in your next deal.
The economics, honestly
Take a £10m GDV scheme. Senior at 70% LTGDV leaves £1.5m of cost to fund after your £1.5m equity minimum. Mezzanine to 80% releases £1m of that. If that £1m seeds a second scheme returning 20% on equity while the mezzanine costs you the equivalent of a low teens annual rate on a much smaller tranche, the maths works. If you have no second scheme, it usually does not. We will run both versions of that calculation with you before recommending anything.
The intercreditor
Your senior lender must consent, and the two lenders sign an intercreditor agreement setting out priority, cure rights and enforcement. Not every senior lender accepts every mezzanine provider, which is a matching problem before it is a pricing problem. We arrange mezzanine from providers your senior lender will accept and manage the intercreditor process end to end.
Total leverage is a valuation question before it is a structuring one
Mezzanine sits on top of senior debt, so the total debt the deal can carry is a percentage of whatever valuation figure the lenders use. Where the senior lender sizes against a restricted marketing period figure rather than market value, the base everything stacks on is already lower, and the mezzanine tranche has less room than the headline percentages suggest.
On development the same applies to gross development value: senior and mezzanine leverage are both tested against the valuer's completed figure, not against your appraisal. Establishing both bases early is what makes a stacked structure work. 90 and 180 day valuations explained →
Mezzanine runs on the senior lender's clock
Six to ten weeks, and the binding constraint is rarely the mezzanine provider. It is the intercreditor deed: the agreement between senior and mezzanine lenders about who ranks where and who controls what on enforcement. Negotiating it involves two lenders and two sets of solicitors, and it cannot start until the senior terms are settled.
Introducing the mezzanine provider early, rather than once senior terms are agreed, is the single thing that shortens this. The honest bridging timeline →
Mezzanine finance FAQs
What is mezzanine finance in property?
Mezzanine is a second layer of debt sitting behind your senior development or bridging facility, secured by a second charge. It tops up the capital stack, typically taking combined leverage to 80% of GDV, so you put in less equity per scheme.
What does it cost?
From around 1.35% per month on the mezzanine tranche, priced on combined leverage. Judge it against the return on the equity it releases, not against senior debt pricing.
Does my senior lender have to agree?
Yes. An intercreditor agreement between senior and mezzanine lenders sets out priority and enforcement rights. We arrange mezzanine from lenders your senior lender will accept, and handle the intercreditor process.
When does mezzanine make sense?
When spreading equity across more schemes earns more than the mezzanine costs, when a build cost overrun needs funding without repricing the senior facility, or when a deal is strong but your available equity is short of the senior lender's requirement.
What does mezzanine finance cost?
Rates from around 1.35% per month on the mezzanine tranche, priced on the combined senior plus mezzanine leverage. It is more expensive than senior debt because it takes losses first; the question is whether the equity it releases earns more elsewhere.
How long does it take to arrange mezzanine finance?
Six to ten weeks in most cases, and the constraint is usually not the mezzanine lender. It is the intercreditor deed between the senior and mezzanine lenders setting out ranking and control on enforcement, which involves two lenders and two sets of solicitors and cannot begin until senior terms are settled. Bringing the mezzanine provider into the conversation early, rather than once the senior facility is agreed, is what shortens the process.