Glossary definition
Mezzanine Finance
A layer of debt that sits between the senior loan and developer equity in the capital stack, secured by a second legal charge on the property. Mezzanine finance stretches the total borrowing on a project from the typical 60-65% LTGDV offered by senior lenders up to 80-90% of costs, significantly reducing the equity required from the developer.
Definition
A layer of debt that sits between the senior loan and developer equity in the capital stack, secured by a second legal charge on the property. Mezzanine finance stretches the total borrowing on a project from the typical 60-65% LTGDV offered by senior lenders up to 80-90% of costs, significantly reducing the equity required from the developer. It carries higher interest rates than senior debt, typically 12-18% per annum, reflecting its subordinated position and higher risk.
See also
Closely related terms.
Senior Debt
The primary layer of debt in a development finance structure, secured by a first legal charge on the property and sitting at the bottom of the capital stack with first priority on repayment.
Capital Stack
The total structure of funding used to finance a development project, arranged by seniority from senior debt at the bottom through mezzanine finance to developer equity at the top.
Equity
The developer's own capital contribution to a project, sitting at the top of the capital stack and bearing the highest risk but also receiving the residual profit.
Intercreditor Deed
A legal agreement between two or more lenders in the capital stack that defines their respective rights, priorities, and remedies in relation to the same borrower and security.
LTGDV (Loan to Gross Development Value)
A key lending metric in development finance that expresses the total loan amount as a percentage of the gross development value of the completed scheme.
Further reading
Guides that touch this term.
Guide
Mezzanine vs JV Equity: Cost Worked Example on One Scheme
A worked cost comparison of mezzanine finance and joint venture equity on the same development, showing what each costs when the scheme performs, when profit falls short and where the break-even sits.
5 min read readReadGuide
The Capital Stack in Property Development: How to Structure Your Funding
A comprehensive guide to understanding and structuring the capital stack in UK property development, from senior debt through mezzanine to equity contributions.
9 min read readReadGuide
Can I Get Development Finance With No Track Record?
An eligibility guide for developers without a completed scheme. We explain which lenders will consider you, exactly what they check, and the lower leverage and higher pricing to expect.
5 min read readReadGuide
Bridge First, Then Development Finance: When Bridging Comes First
Some sites have to be bought before a development facility can be put in place. This guide explains when a bridge comes first, how the bridge-to-development refinance works, and what to agree with the bridging lender at the outset.
6 min read readRead
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