Mezzanine loans for developers

Do you need to borrow further money to fund a shortfall in cash for a development project?

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A mezzanine loan will sit behind the senior debt lender as a second charge and is a critical part of the capital stack. Mezzanine lenders will normally receive their money from a development after the senior lender which is why the cost and risk is more with this type of loan.

Mezzanine loans can also be a great way to raise development finance quickly. They can be used to contribute towards purchase of land to develop, development costs for residential new builds and the purchase or development of commercial buildings. Mezzanine lending can be a great way to plug a gap if there are down valuations. A down valuation can cause a senior debt lenders to reduce their overall lending and this is where Mezzanine lending can play a vital role.

For developers, delays to completion of a development project due to lack of funds can be extremely costly. A mezzanine loan can bridge the funding gap to allow the developer to complete on schedule.

When using mezzanine lending it is key to calculate the overall cost of funds across the project. This will give a blended total of how much the senior debt and the mezz debt costs together.

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How does mezzanine capital for developers work?

Whilst mezzanine loans and bridging loans fill a financial gap, mezzanine loans have different terms. A mezzanine loan is another type of development finance and acts like a second charge loan. The lender will provide a percentage of the gross development value which is typically up to 20%.

For developers this can be more flexible than having to use personal capital to fund the entire shortfall of cash to complete the development.

This allows developers flexibility, especially if they are investing in multiple development sites at the same time.

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Benefits of a mezzanine property development finance

Development sites and projects are highly competitive which makes access to the right financing structures an absolute priority.

A mezzanine loan can:

  • Enable developers to raise additional lending on a project
  • Funds can be raised quickly – typically within 28 days
  • Rates from 15% PA
  • Lenders typically lend up to 20% of the gross development value
  • Repayment plans between 12 and 24 months
  • Options on how to pay off the interest including a “roll up” facility where appropriate

Our specialist team understand the urgency and complexities involved in development loans. We are extremely well connected with lenders and landowners to ensure our developer clients get the right access to opportunities and capital.

Why not join our network? Contact us to discuss your aims.

How do I qualify for mezzanine funding and development loans?

Not all developers can qualify for a mezzanine loan and lenders will require evidence of a strong chance of a return in order to minimise risk. That is why it helps to speak to experienced professionals with a track record of securing mezzanine loans for developers.

For developers, by getting in touch with our specialist team, we will look at all of your options to work out if a mezzanine loan is a good fit. We will explain all of the features of specialist mezzanine finance, including the likelihood of higher interest rates and a percentage of the profits in payment. Our developer clients can weigh up the advantages of raising capital to invest in development sites and projects against the costs of the loan.

There are many alternative finance options available and our specialists are experienced at assessing all the terms and facilities along with the client’s circumstances and requirements to make the right choice.

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    A mezzanine loan: A case study

    Our client wanted to purchase an existing building which they planned to convert and extend into apartments.

    • Purchase price: £975,000
    • Build facility: £1,075,000
    • GDV: £2,950,000

    We sourced senior debt at 60% LTGDV at 7% pa. 2% in and a 1% exit fee on loan amount. This equated to £510,000 on the day one advance and £1.075m build facility

    Client equity contribution is c£465k on the purchase. As the client was waiting for a sale to go through on one of his other projects, his equity was tied up.

    The Solution

    He needed more leverage towards the purchase of £975k due to his equity being tied up. Our adviser was able to liaise with one of our junior funding partners and they agreed to lend an extra £200k on the day one advance, taking the total day one advance to £710k on £975k which means the clients’ equity contribution is now only £265k

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    Case Studies

    I’m moving into my dream home thanks to Mesa – I’d recommend them to anyone and I feel very lucky to have been taken care of by a company that gave me such brilliant support

    Alexandra Winter

    We have been so impressed with Mesa Financial. They have a highly knowledgeable and skilled team. The customer service has been amazing throughout the process and they are always available to you via phone or email. Highly recommend them – very professional service.

    Nina Jay

    Mesa has supported me through the whole process of getting a mortgage. My contact reference was always reliable and always promptly took action to make sure everything would move ahead smoothly. Brilliant service.

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