Subordinate Capital That Sits Behind the Senior Loan
Mezzanine financing occupies the space in the capital stack between the senior mortgage and the borrower's equity. When a senior lender generally caps out at 65% to 75% loan to value, mezzanine debt layers on top to bring total leverage to generally 85% to 90%, reducing the equity a sponsor has to put into the deal. It is priced well above senior debt because the mezzanine lender sits in a subordinate position and gets repaid only after the senior loan is current. Instead of recording a mortgage lien, mezzanine loans are usually secured by a pledge of the ownership interests in the entity that holds the property, which lets the lender step in quickly if the deal goes sideways. Every mezzanine placement involves an intercreditor agreement between the senior and mezzanine lenders that spells out cure rights, standstill periods, and foreclosure procedures. CapitalAx sources mezzanine capital from debt funds, private equity groups, and specialty lenders who know how to structure this layer without upsetting the senior loan.
Deal Structure at a Glance
Who Is This For?
- Sponsors who want to reduce the equity required on an acquisition or development
- Owners recapitalizing a property without selling or refinancing the senior loan
- Developers closing the gap between a construction loan and total project cost
- Investors pursuing larger deals than their available equity would otherwise allow
- Operators funding value add capital expenditures on top of existing senior debt
Common Use Cases
- Increasing total leverage above what a senior lender will fund
- Recapitalizing a property to return equity to partners
- Filling the funding gap on ground up construction and major renovation
- Financing a portion of an acquisition to preserve investor equity
- Funding value add capital improvements behind a senior mortgage
Borrower Scenarios
Examples of how this financing can be used.
A multifamily sponsor acquiring a stabilized garden style apartment complex, adding a mezzanine piece behind the senior mortgage to push total leverage well past what the senior lender would fund alone and cut the required equity check by more than half.
A developer on a ground up multifamily project whose construction loan covers most but not all of total project cost, closing a mezzanine layer secured by a pledge of the development entity to fund the remaining gap without bringing in a new equity partner.
An owner of a stabilized office building recapitalizing to return trapped equity to partners, layering mezzanine debt behind the existing senior mortgage rather than triggering the prepayment penalty on a full refinance.
A hotel operator funding a brand mandated renovation with mezzanine capital behind a flagged senior loan, structured with an intercreditor agreement that gave the senior lender a defined standstill period and the mezzanine lender defined cure rights.
Why Work With CapitalAx
We help borrowers organize mezzanine financing requests and compare lending sources that may fit the transaction.
Lenders Who Structure the Full Capital Stack
Mezzanine debt only works when the senior loan and the mezzanine layer are structured together. We coordinate both pieces at the same time, matching your deal with senior lenders who accept a mezzanine layer and mezzanine funds that price competitively for your leverage target.
Intercreditor Negotiation Experience
The intercreditor agreement decides how much control each lender has and how fast a problem gets resolved. We know which terms mezzanine lenders will flex on and which ones senior lenders insist on, so the negotiation moves quickly instead of stalling the closing for months.
Blended Cost Analysis Before You Commit
Adding a mezzanine layer changes your total cost of capital and your returns. We model the blended rate against the equity you would otherwise raise so you can see whether the mezzanine layer actually improves your deal before signing a term sheet.
Tools & Calculators
Capital Stack Calculator
Combine senior debt, mezzanine financing, and preferred equity to calculate blended capital cost and visualize the stack.
Debt Yield Calculator
Calculate debt yield from NOI and loan amount, and see the maximum loan a lender's debt yield floor allows.
DSCR Calculator
Calculate debt service coverage ratio to see if your property qualifies for DSCR financing.
Max Loan Calculator
Find out the maximum loan amount your property can support based on income and expenses.
Related Loan Programs
Related Property Types
Looking for a different financing structure? Browse all loan programs.