Mezzanine loans for developers

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A mezzanine loan will sit behind the senior debt lender as a second charge and is a critical part of the capital stack. Mezzanine lenders will normally receive their money from a development after the senior lender which is why the cost and risk is more with this type of loan.

Mezzanine loans can also be a great way to raise development finance quickly. They can be used to contribute towards purchase of land to develop, development costs for residential new builds and the purchase or development of commercial buildings. Mezzanine lending can be a great way to plug a gap if there are down valuations. A down valuation can cause a senior debt lenders to reduce their overall lending and this is where Mezzanine lending can play a vital role.

For developers, delays to completion of a development project due to lack of funds can be extremely costly. A mezzanine loan can bridge the funding gap to allow the developer to complete on schedule.

When using mezzanine lending it is key to calculate the overall cost of funds across the project. This will give a blended total of how much the senior debt and the mezz debt costs together.

How does mezzanine capital for developers work?

Whilst mezzanine loans and bridging loans fill a financial gap, mezzanine loans have different terms. A mezzanine loan is another type of development finance and acts like a second charge loan. The lender will provide a percentage of the gross development value which is typically up to 20%.

For developers this can be more flexible than having to use personal capital to fund the entire shortfall of cash to complete the development.

This allows developers flexibility, especially if they are investing in multiple development sites at the same time.

Benefits of a mezzanine property development finance

Development sites and projects are highly competitive which makes access to the right financing structures an absolute priority.

A mezzanine loan can:

  • Enable developers to raise additional lending on a project
  • Funds can be raised quickly – typically within 28 days
  • Rates from 15% PA
  • Lenders typically lend up to 20% of the gross development value
  • Repayment plans between 12 and 24 months
  • Options on how to pay off the interest including a “roll up” facility where appropriate

Our specialist team understand the urgency and complexities involved in development loans. We are extremely well connected with lenders and landowners to ensure our developer clients get the right access to opportunities and capital.