How to use mezzanine finance to reduce equity on your next project
Equity is the most expensive money in any development. Mezzanine finance is how experienced developers stretch a project further without tipping in more of their own capital — freeing that equity for the next deal.
What mezzanine finance is
Mezzanine finance is a layer of debt that sits below senior debt but above equity in the capital stack. It is usually structured as a second mortgage, and it fills the gap between what a senior lender will fund and the total cost of the project.
- Second-mortgage security — ranks behind senior debt but ahead of equity.
- Flexible terms — often with interest capitalised through the build.
- Higher pricing — it carries more risk than senior debt, so it costs more.
How it reduces your equity requirement
A senior lender will fund only part of a project's cost. Adding a mezzanine layer behind that senior facility lifts total leverage — which means less equity to complete the same project. How far it lifts depends entirely on the project, the security and the lender's assessment. To see how much equity your own project needs before any mezzanine is added, run it through the development feasibility calculator.
For a developer, that has two benefits: you preserve capital, and you can run more projects in parallel rather than locking all your equity into one.
The trade-offs
More leverage means more risk. Mezzanine carries higher interest and sits behind senior debt for repayment, so the numbers have to work. Rigorous due diligence — on feasibility, presales and exit — is essential, and specialist legal and financial advice is a must.
How Siare approaches it
Siare arranges and structures mezzanine finance with disciplined due diligence, alongside senior debt and preferred equity, so your capital structure is built around the project rather than forced to fit a product.
Talk to Siare about how a mezzanine layer could reduce the equity on your next project.
This is general information about business and investment-purpose finance only. It is not financial, legal or tax advice and does not take account of your objectives or circumstances. All finance is subject to lender assessment, valuation and approval.