Mezzanine Debt
Mezzanine debt is a junior loan that sits between the senior mortgage and the equity in the capital stack, typically secured by a pledge of equity interests rather than the property itself.
What it means
Mezzanine financing lets a sponsor push total leverage beyond what a senior lender will provide (typically 75–80%) up to 85–90% of capital stack. Mezz is junior to the mortgage and usually senior to preferred equity and common equity.
Mezz carries meaningful pricing (8–14% pay rate plus PIK in some structures) and aggressive default rights. On default, the mezz lender can foreclose on the equity pledge and take ownership of the property-owning entity without foreclosing on the senior mortgage.
Borrowers should view mezz as expensive leverage for a specific purpose (value-add execution, partial refinance, gap-fill), not as cheap capital.
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