Mezzanine finance sometimes referred to a ‘Mezz Funding’ or ‘Stretched Senior Debt’ provides additional loan capital to help fill a gap between a developer’s equity and the amount that the main lender will provide. This is normally secured with a second charge over the property in question, while the bank or senior lender holds a first charge.
Over recent years it has become harder for property companies to gain funding from banks at a higher Loan to Cost above 65%. Capital constraints imposed on Banks require them to be more aware of the risks involved to the property sector. A bank will now typically restrict the Loan to Cost covenant to between 50-75% and the Loan to Gross Development Value to 55-65%.
By taking out Mezzanine funding the developer can achieve a maximum return with minimum cash contribution/Equity. Assured will consider up to 90% Loan to Cost for periods from 6-24 months for experienced developers providing the the ability to invest in other opportunities.
Mezzanine funding allows property developers to move onto that next project pending sales income from a previously completed scheme or where equity is tight. It allows you to spread your risk, increase development capacity and widen your development options.