Mezzanine financing — has anyone actually used it?

Clint, mezz is real but it's for larger deals — typically $5M+ total project cost. I've done 3 mezz deals in my career. Here's how it works: Senior lender provides 65-70% LTV. Mezz lender fills the gap to 80-85% LTV. Mezz is subordinate to senior debt but senior to equity. Mezz rates are 12-18% because of the risk position. Where to find mezz lenders: family offices, debt funds, some private equity shops. It's a relationship business — you won't find them on a portal. You need to know them personally or get introduced. For deals under $5M, mezz is usually not worth the complexity. Preferred equity is often a better alternative.

Thomas — this is incredibly helpful. My deal is $3.2M so sounds like mezz isn't the right fit. What's preferred equity and how does it work?

Preferred equity is similar to mezz but structured as equity rather than debt. The preferred equity investor gets a preferred return (usually 10-14%) before common equity gets anything. It's simpler legally and works well for smaller deals. The tradeoff is the preferred equity investor often gets some governance rights. Happy to explain more — DM me.

this is way above my head but i'm saving this thread for when i get to bigger deals lol

Hey Clint, good question on mezz and pref equity. Thomas is spot on that mezz is typically for larger commercial deals, often $5M+ on the debt side. For residential, especially fix & flip or smaller bridge, pref equity is definitely more common if you need to fill a gap. I've seen it used on a $1.5M acquisition, $250k rehab project where the borrower had 10% cash, senior lender did 70% LTC, and we brought in a pref equity partner for the remaining 20%. They got 12% pref return, paid monthly or accrued, and a small equity kicker. It saved the deal from falling apart. The key is finding those smaller shops or high-net-worth individuals who specialize in pref equity for residential. They're out there, often through broker networks or private capital groups. What's the LTV/LTC you're trying to hit on your deal, and what's the current senior debt offer?

Absolutely, mezzanine financing is a powerful tool, and yes, I've structured several deals with it. It's particularly effective for value-add multifamily or commercial projects where the sponsor needs to bridge a 15-25% gap between a 65-70% LTV senior loan and their 10-15% equity contribution. For instance, we recently closed a 200-unit multifamily acquisition. The senior lender provided 68% LTV at a 6.5% rate. The sponsor had 12% equity. We brought in a mezz lender for the remaining 20% at a 10.5% interest-only rate, plus a 2% exit fee. This allowed the sponsor to acquire the asset and execute their business plan without diluting their equity stake. Finding mezz lenders often involves specialized debt funds, family offices, or even some larger regional banks with dedicated structured finance desks. It's not for every deal, but for the right project with a strong sponsor and clear exit strategy, it's invaluable.

This is a great thread! I've been hearing a lot about mezz lately too, but haven't pulled the trigger on a deal with it yet. My biggest challenge has been finding lenders who are active in the smaller to mid-market range. Most of the mezz shops I've talked to seem to want deals north of $10M total capitalization. I had a client recently on a $3.5M multifamily acquisition where the senior lender capped out at 65% LTV, and the sponsor only had 15% equity. We ended up going with a higher-cost bridge loan to cover the gap, but I kept thinking mezz could have been a better fit for that 20% slice. For those of you who have used it, what's been your experience with minimum deal sizes for mezz providers? And how do you typically structure the interest payments – current pay or accrual? Trying to learn more for the next one!

Great discussion on mezz. Yes, I've used it successfully, particularly on value-add multifamily and light industrial projects. It's truly effective when a sponsor has strong experience but needs to bridge that 10-20% gap between senior debt and their equity contribution, especially when senior debt maxes out around 65-70% LTC. For example, we recently closed a 120-unit multifamily acquisition where the senior lender was at 68% LTC, and the sponsor needed to hit 85% LTC to preserve equity for the renovation budget. We brought in a mezz lender for 17% of the capital stack. This allowed the sponsor to keep more cash for the $2.5M rehab. Mezz lenders often look for cash-flowing assets with clear value-add strategies and strong sponsorship. You'll find them among debt funds, private equity firms, and some specialized commercial banks. It's all about the project's business plan and the sponsor's track record.

This is a good question, and honestly, I haven't personally used mezzanine on any of my residential bridge, fix & flip, or DSCR deals. Those typically don't have the scale for it. My clients are usually looking for a 70-75% LTV on a bridge or up to 85% LTC on a fix & flip, and we can usually hit those numbers with senior debt. I've seen mezz mentioned more for larger commercial or multifamily projects where the senior lender caps out at, say, 60% LTV, and the sponsor needs to get up to 80-85% overall. It sounds like a great tool for those bigger plays. For anyone who has used it, what's the typical minimum deal size you've seen for mezz to make sense? And what kind of rates are we talking about on that junior piece compared to senior debt?

Good discussion on mezzanine. From my vantage point in hard money, mezzanine isn't typically something we're directly involved with, mainly because our focus is on asset-based lending for speed and shorter terms. Mezzanine usually comes into play on larger, more complex commercial projects where the senior debt hits a wall at 60-70% LTV and the sponsor needs to bridge another 10-20% without diluting equity too much. Think ground-up construction or heavy value-add where the project timeline is 2-5 years. Our hard money deals, like a 12-month bridge on a commercial acquisition or a 6-month fix-and-flip, are often too quick and too small for mezz to make sense. We're usually at 70-75% LTV on the hard money side, closing in days, not weeks. If you're looking at a deal where a conventional bank is at 60% and you need another 15%, and your project has a longer horizon, that's where mezz can fit. But for fast, asset-driven capital, hard money is a different beast entirely.