1. What is it?
Mezzanine project finance could give you that final tranche of funding required to fill the gaps in any construction or development costs for residential, commercial or mixed-use projects.
Charles Ayton, Senior Commercial Manager at Large Mortgage Loans, comments that:
“Mezzanine finance is typically used to fund the gap between traditional bank lending and the developer’s equity stake. Banks will typically lend up to 60/65% of total costs, leaving the remainder to be funded from the developer’s own reserves.
It works by sitting behind the traditional bank funding but ahead of the borrower’s equity, providing total debt funding of up to 85% of total project costs including finance. On completion of the development the bank debt is repaid first, followed by the mezzanine finance. The residual profit will repay any equity and then provide the developer with their profit.”
Banks are a major source for mezzanine finance, along with private investors and pensions funds.1 Importantly, the loan associated with a mezzanine finance arrangement is redeemed in a one-off payment, rather than being paid monthly over a period of years. This means that on a month by month basis, the loan does not place a strain on your cash flow.2
2. When to use it?
Mezzanine finance gives you the opportunity to leverage future profit for the maximum return, with the cash contribution you have currently available.3
Mezzanine finance could be a great option for you if you have already secured as much lending as possible through a development loan, but still require a top-up to your contribution. Mezzanine financing could provide you with the extra funding that you require.
Mezzanine funding could be a possibility if you:
- are an experienced property developer
- have a high cash flow and a good history of growth
- have a project which has already been granted planning permission but requires additional funding
3. Where to get it?
Specialist advisers with experience and knowledge of dealing with development and mezzanine finance would be your first port of call. They will be able to provide you with advice about whether or not mezzanine finance is the right option for you.
After taking a view on your specific circumstances, they will present your case requirements to an appropriate lender, using their unlimited contacts and relationships within the market.
There are many opportunities available to those who consider mezzanine finance. A specialist adviser can help you to realise such development opportunities and secure a bespoke deal for you.
Your home may be repossessed if you do not keep up repayments on your mortgage.
You may have to pay an early repayment charge to your existing lender if you re-mortgage.
