Mezzanine Financing: An Investor's Guide
Mezzanine financing fills the gap between senior debt and equity in commercial real estate and business acquisition deals. It is more expensive than senior debt, but cheaper than equity — and it can mean the difference between a deal closing or dying.
Where Mezz Fits
In a typical capital stack, senior debt covers 60–70% of the project cost, mezzanine covers another 10–20%, and equity covers the rest. Mezz is structurally subordinate to senior debt and senior to common equity.
Typical Terms
Mezz rates typically range from 10–14% with terms matching or shorter than the senior. Interest is often a mix of current pay and accrual. Many mezz lenders also require warrants, equity kickers, or other forms of upside participation.
Secured vs Unsecured
Real estate mezz is typically secured by a pledge of the equity interests in the property-owning entity rather than a direct lien on the real estate itself. This structure allows for faster foreclosure if the borrower defaults but means the mezz lender takes ownership of the entity, not the property directly.
Inter-Creditor Agreements
Senior lenders and mezz lenders enter an inter-creditor agreement that defines what happens in default. Understanding this agreement is essential — the rights of each party in a workout scenario are spelled out in advance.
Educational content only — not advice. KQT Advisors, LLC is a commercial loan broker; we are not a lender, attorney, accountant, financial advisor, or fiduciary. We do not originate loans or make lending decisions. The information in this article is provided strictly for general informational and educational purposes and reflects our understanding at the time of writing. It is not — and must not be construed as — financial, tax, legal, accounting, investment, or any other professional advice, and creates no advisor-client relationship. Loan programs, rates, terms, eligibility requirements, fees, and approval criteria are set by individual lenders, the SBA, and other parties and are subject to change at any time without notice. Examples are illustrative only and not guarantees of outcome. Nothing here is a commitment to lend, an offer of credit, or a representation that any specific structure will be available to or appropriate for any borrower. Always consult your own qualified financial, tax, and legal advisors before acting on any information in this article. To the maximum extent permitted by law, KQT Advisors, LLC and its principals, employees, agents, and affiliates disclaim all liability for any direct, indirect, consequential, or incidental loss or damage arising out of any use of, reliance on, or inability to use the information in this article.