Mezzanine finance when used in the context of property development finance describes the finance over and above the finance provided by a traditional senior debt facility and can be used by experienced developers to achieve 100% funding on a development.

If the senior debt is 75% of site and 75% of costs then the mezzanine is the balance of 25% of site and 25% of costs.

Mezzanine finance is higher risk financing than senior debt and as such attracts a higher rate of interest.

The rate of interest charged by mezzanine lenders varies from 25 – 30% per annum and a 1% arrangement fee and in general will only be lent to developers with an exceptional track record and on developments with suitable returns. The lender would also require limited guarantees from the principals involved.

Mezzanine funding is still secured lending as the mezzanine lender will take a 2nd charge over the development behind the senior debt lender. The mezzanine lender and the senior debt lender will require an agreed form of priority over the development.

Mezzanine allows a successful developer to take on additional developments with little or none of their own capital being employed.