Mezzanine finance
Deal box · EUR 1M to 50M+
Borrowers · Subordinated capital
What mezzanine finance does.
See our approachRepaid after the senior loan and before the sponsor, with that order written into an agreement between the two sets of creditors.
It covers part of the distance between what the senior loan advances and what the scheme costs, so less of the sponsor’s own money is tied up.
Facilities across our deal box, with exceptions considered case by case, for terms of 6 to 72 months and priced for the rank they hold.
In real estate, mezzanine financing fills the middle of a project’s capital stack. Because it is repaid after the senior debt, it carries more risk and costs more, and its security and ranking are settled with the senior lender before any investor commits.
Watson AM does not lend. We work out where a mezzanine tranche fits, structure it alongside the senior facility, prepare the file and present it to the investors in our network it suits; each investor makes its own assessment and the funding decision.
How fast mezzanine moves.
Mezzanine is often needed once the senior terms are known and a gap remains. These are the timings on our side; the investors’ checks and the agreement with the senior lender set the rest.
Enquire
The scheme, the senior facility in place or sought, the gap to fill and the exit.
Read
A principal reads the brief, places the request in the stack and asks for anything missing.
Terms
Indicative terms in writing, with the ranking, the security and the exit set out.
Investors decide
Each investor runs its own checks and decides; 58 days is our average from mandate to funding.
Indicative terms are subject to investor approval, due diligence and final documentation. Funding is not guaranteed.
A mezzanine loan is read by its rank.
Where a tranche sits decides what it is exposed to, how it can be secured and what it should cost. Pick a tab to see what investors weigh at each point.
Mezzanine takes the slice of the cost above what the senior lender will advance and below the equity the sponsor puts in. A loss reaches it only once that equity is used up, and it is paid back before the sponsor sees any return.
What investors test
- The senior terms
- Equity beneath it
- Total loan-to-value
The first-rank mortgage belongs to the senior lender, so mezzanine is secured behind it: a second-rank mortgage, a pledge over the shares of the company that owns the property, or both. An intercreditor agreement then sets who is paid when, and who may act if the project stalls.
What investors test
- Rank of the charge
- Intercreditor terms
- Rights on default
It suits a sound scheme whose senior loan stops short: a sponsor keeping equity free for the next site, a cost increase mid-build, a purchase that must close before more equity is raised. Since it costs more than senior debt, the scheme’s margin has to carry it.
What investors test
- Margin after costs
- Headroom at exit
- The sponsor’s record
The capital stack, in order.
Three layers of money, repaid from the bottom up.
Senior loan
1st
first-rank mortgage
Mezzanine
2nd
second rank or share pledge
Equity
Last
the sponsor’s own capital
The senior loan sits at the bottom of the stack: usually the largest layer and the cheapest, secured by a first-rank mortgage and repaid first. The sponsor’s equity sits at the top, where it absorbs any loss before anyone else and is paid back last.
Mezzanine is the layer in between, and its price follows from that position: higher than the senior loan because it is repaid later, and still worth paying for a sponsor because it stands in for part of their own equity. Read what mezzanine debt is in our explainer, or see all six structures.
Mezzanine questions.
The questions sponsors raise first. If yours is not here, write to us and we’ll pick it up from there.
What is mezzanine finance?
Mezzanine finance, or mezzanine debt, is a loan that sits between the senior debt and the equity in a property's capital stack. It's repaid after the senior loan and before the sponsor's equity, so it lets a developer put less of their own money into a scheme, and it's priced above the senior loan for the extra risk it carries. Watson AM arranges mezzanine finance for developers across Europe and presents each facility to the investors in its network it suits.
How is mezzanine finance secured?
Security is set per deal. A mezzanine facility is commonly secured by a second-rank mortgage on the property, a pledge over the shares of the company that owns it, or both, and we look for a personal guarantee from the sponsor where the deal supports it. An intercreditor agreement with the senior lender fixes the order of repayment and what each party may do if the project runs into difficulty.
When does mezzanine financing make sense in real estate?
When a sound scheme needs more than the senior lender will advance and the sponsor would rather not fill the gap with more equity: to keep capital free for the next site, to absorb a cost increase during the build, or to close a purchase on time. Mezzanine costs more than senior debt, so the scheme's margin has to carry it comfortably.
Does Watson AM provide the mezzanine loan itself?
No. Watson AM does not lend. We assess where a mezzanine tranche fits, structure it alongside the senior facility, prepare the file and present it to the investors in our network it suits. Each investor runs its own assessment and makes the funding decision.
How quickly can mezzanine finance be arranged?
A principal reads your brief within 24 hours, and indicative terms follow within 72 hours of a complete enquiry. Across our files, the average from mandate to funding is 58 days. A mezzanine facility also needs an agreement with the senior lender, so we open that conversation early. Indicative terms are subject to investor approval, due diligence and final documentation. Funding is not guaranteed.