Mezzanine Finance: topping up the development stack
Second-charge development funding that sits above senior debt and below your equity, reducing the cash you put in, in exchange for a higher rate on that slice.
Talk to Ashley about your scheme
Where mezzanine sits
The senior lender funds most of the costs, commonly somewhere between 70% and 85%. Mezzanine finance adds another slice behind it on a second charge, often taking the stack to around 90% of total costs. Your equity covers the rest. The mezz slice costs more, because it carries more risk, but it can be the difference between doing one scheme a year and two.
Model your own numbers with the development calculator: it shows the equity a senior lender alone would leave you to find, which is the gap mezzanine is there to fill.
"Mezz is a leverage decision, not a rescue product. If a deal only works with mezzanine squeezed in at the last minute, it usually didn't work."
When it makes sense
- Spreading equity across two schemes instead of one
- Keeping cash back for the next site purchase
- Senior lender capped below what the scheme supports
Intercreditor agreements govern how senior and mezz lenders rank. We arrange stacks where the two actually work together, because a senior lender who resents the mezz behind them makes every drawdown slower.
Mezzanine or JV equity?
Both reduce the cash you put in, and they're the two usual answers to the same question. The difference is what you give up:
- Mezzanine is debt. You pay a higher rate on that slice, but the profit stays yours. Best when the margin is healthy and you simply want your cash working across more sites.
- JV equity is a partner. They can cover the whole equity requirement, but they take a share of the profit, commonly starting around 50/50. Best when you have the scheme and the experience but not the cash.
Rough rule: if you can afford the deal and want scale, mezzanine. If you can't afford the deal at all, JV. We'll run both against your appraisal and show you the two profit lines side by side.
Your questions
What is mezzanine finance in property development?
A second layer of development debt that sits behind the senior lender and in front of your equity. It funds the slice of costs the senior lender won't reach, so you put less cash in, and it charges more for taking that position.
What does mezzanine finance cost?
Meaningfully more than senior debt, typically from around 10% a year upwards on the mezz slice, priced to the risk. Blended across the whole stack, the effective rate often still beats leaving a scheme undone.
Do senior lenders allow mezzanine behind them?
Many do with an agreed intercreditor, some flatly don't. We match senior lenders who play well with mezz from the start, which saves the whole stack being renegotiated at week six.
Is mezzanine finance risky?
It's the most exposed debt in the stack, repaid after the senior lender, which is why it costs the most. The real risk isn't the product, it's over-leveraging a thin scheme. On a sound scheme with honest numbers, it's a leverage tool like any other.
Is there a minimum size for mezzanine finance?
In practice a mezz slice under about £250,000 rarely makes sense, the fees outweigh the benefit. Above that, it scales with the scheme.
Does mezzanine finance need a personal guarantee?
Usually yes, in some form, as with most development lending. Because mezz sits behind the senior lender it often asks for more comfort rather than less. We set out the real exposure before you sign anything.
Got a deal like this on your desk?
Tell us the numbers and we'll tell you honestly what's achievable.
Prefer to put it in writing? Email support@bridgingfinancebroker.co.uk