Mezzanine Development finance is a type of finance which is primarily used by property developers to fund part of a development project’s costs.
Funds are released to property developers in stages as the project timeline progresses and as and when they are required.
The finance is often secured as a second charge behind the project’s primary lender and loan for the development project.
Lenders will typically invest into a development project subject to an assurance from the developer that they will obtain their original investment back plus some interest, as well as an agreed proportion of the profit made by the developer. Additionally, as an alternative to profit sharing they may instead charge an agreed fee or a higher interest rate on the loan.
One of the advantages of obtaining Mezzanine financing is that it can help to reduce the total amount of deposit that is required from a developer in order to start the project.
Mezzanine development finance lending criteria
As independent development finance brokers, we can help you obtain mezzanine finance for development projects throughout the United Kingdom. There are several mezzanine financing options providing up to 90% Loan to cost (LTC) and we have a panel of niche lenders and investors which can help you quickly source the required capital.
Below is the key criteria you need to consider:
- You can borrow up to 90% LTC
- Finance is available throughout the UK
- There is no max loan size
- Terms are usually from 6 – 24 months
- Experienced developers are preferred
- Planning permission granted or permitted development rights available
- Loans can include part of the land cost
- Includes new build and extensive refurbishment projects
What is the cost of mezzanine funding?
Generally speaking, the interest rate charges are around 1% per month with a 2% arrangement fee and a 1% exit fee charged by the lender.
Again, prices will vary depending on the lenders, who will consider several factors including but not limited to:
- The experience of the developer
- The strength of the application
- The deposit input from the developer
- The estimated demand for the completed development
- The location of the development
- The loan amount required
Mezzanine development finance for experienced developers
Mezzanine financing lenders and private investors have a tendency to limit their lending to seasoned property developers that have a background in profitable projects, and with whom they feel confident with. This is obviously significant since this kind of financing offers high loan to value funding, therefore they will also need assurances that the primary lender is also willing to lend.
The primary lender will be open to financing if they see that the developer themselves are placing a good amount of the funds needed to finance the project.
Lenders can sometimes become anxious about lending under Mezzanine Finance. This is because if things begin to go wrong, the developer may just decide to leave the project. Therefore, the lender will want to be sure about the key expertise and skill of the developer before committing to lending the amounts required under this Mezzanine Finance facility.