Quick answer: Mezzanine finance sits behind the senior construction lender and ahead of ordinary equity, filling part of the developer-equity gap at a higher cost and risk. It can improve return on equity when the project margin is strong, but it can also eliminate profit quickly if construction or sales are delayed.
Questions borrowers, investors and developers commonly ask
- I have a strong project but not enough equity — can mezzanine fill the gap?
- Why is mezzanine so much more expensive than the first mortgage?
It is subordinate capital
The mezzanine lender is repaid after the senior lender, so it carries greater loss risk and normally prices accordingly.
Model profit after all capital costs
Include establishment fees, default or extension pricing and extra interest from delays before deciding that the project can safely carry mezzanine debt.
Related guides
General information only. Commercial-property and development lending criteria vary by lender, transaction, security and market conditions. This is not legal, tax or investment advice.
Frequently asked questions
I have a strong project but not enough equity — can mezzanine fill the gap?
Mezzanine finance sits behind the senior construction lender and ahead of ordinary equity, filling part of the developer-equity gap at a higher cost and risk. It can improve return on equity when the project margin is strong, but it can also eliminate profit quickly if construction or sales are delayed.
Why is mezzanine so much more expensive than the first mortgage?
The mezzanine lender is repaid after the senior lender, so it carries greater loss risk and normally prices accordingly.
Will every lender treat this the same way?
No. Commercial and development lending policy varies materially by lender and transaction.
Should I apply before the structure is tested?
For material or unusual transactions, test lender fit and the funding structure before creating formal applications.
Sources and verification
Need help matching this to a business-finance option?
GPS Finance can review the funding purpose, conduct, documents and lender fit before you make a formal enquiry.
