Mezzanine Development Finance
What is Mezzanine Finance?
Mezzanine Finance is subordinate to first mortgages. It means diluting the equity and maintaining control of the assets and is often used in highly leveraged buyouts and new builds. It can come in several different forms, e.g. junior debt, convertible debt, and participating debt.
Mezzanine Finance will typically be funded before the senior loan for construction and repaid afterward. Interest rates may be higher (typically between 12 and 20 percent) but this can be viewed in the context that you won't have to put up as much initial capital. When arranging Mezzanine Finance, our expertise means we may be able to take into account your expansion plans as well as current profitability. Annual profits and annual payments towards your senior loan will also be factored in.
Equity investment is unsecured and high risk, so it commands a high reward. It is attractive to a developer as it allows an experienced developer with a solid business plan to unlock development finance for the project whereby equity is invested into a project in return for part ownership of that project (usually in the form of a profit share).
Equity funding of 95% or even 100% in the form of hard cash can come into play in its entirety, or in a second charge behind a Debt funder. So, it will activate when a developer needs more finance than Senior, Stretched Senior and/or Mezzanine can provide.
Equity (in the form of soft equity) can also be used for Planning gain deals, so it is vital that the lender has confidence in you, the developer.
We can help you progress an Equity loan with a view to selecting an equity provider who will offer the best deal regarding the cost and the conditions. We’ll also help them gain a minimum return on their money.