Terms vary by lender, asset and sponsor. Every number here is indicative and quoted deal-by-deal.
Size it against this execution. Same solve our credit team runs.
Mezzanine debt exists because senior lenders have leverage limits they won't cross regardless of how good the deal is, and sponsors don't always want to bring in a full equity partner to close that last 10-15 points. Structured correctly, secured by a pledge of the borrowing entity's ownership interests rather than a second mortgage, it lets a senior lender remain in first position while a mezzanine lender takes a controlled, intercreditor-governed subordinate position.
The discipline this requires is real: the intercreditor agreement between senior and mezzanine lenders has to be negotiated before either loan closes, and a sponsor who treats mezzanine as free money to stretch leverage without a credible plan to service the blended cost is setting up a deal that can't carry itself.
Used well, it's the difference between a deal that pencils and one that doesn't, without diluting the sponsor's ownership the way a preferred equity or joint-venture structure would.
Debt funds and family offices remain the primary source of mezzanine capital, and appetite has stayed steady even as senior lenders tightened, because mezzanine providers are underwriting the same fundamentals a senior lender already vetted, at a price that reflects genuine subordination risk. All-in cost has held in the low-to-mid teens for most stabilized and light value-add deals, higher for construction or heavier repositioning.
Senior lenders have also gotten more particular about who they'll allow behind them; a mezzanine provider with a track record of cooperative intercreditor behavior closes faster than one the senior lender doesn't know.
Mezzanine wins when the sponsor wants to close the leverage gap without giving up ownership or control, and the deal's cash flow can carry the blended cost of capital. It's the wrong tool when the gap is large enough that the resulting combined leverage leaves no margin for a downside case, at that point the deal usually needs equity, not more debt, however it's labeled.
If the senior lender will simply increase proceeds to close the gap, that's almost always cheaper and simpler than layering in a mezzanine piece; we check that first before structuring a second tranche.
Yes. The senior lender negotiates and signs the intercreditor agreement that governs how the mezzanine lender can act, including standstill periods and cure rights, before either loan closes.
No, that's the key structural difference from a second mortgage. It's secured by a pledge of the ownership interests in the entity that owns the property, which is why foreclosure on a mezzanine default is a UCC process, not a real estate foreclosure.
Typically low-to-mid teens all-in, reflecting the subordinate position, well above senior debt but generally cheaper than giving up an equivalent slice of ownership to a preferred equity or JV partner.
Underwriting and real options at no cost. A senior originator, not a queue.
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