Mezzanine financing is provided by non-bank lenders who take on risk at higher interest rates. Banks are limited by regulation in terms of what they will lend on a building project. Typically, they will provide funds for just 65% of the value of the development, leaving 35% up to you. Closing the gap is where mezzanine financing comes in.
By going to a mezzanine lender, you take on a partner who shares your risk and reduces the amount of equity you have to invest. If the return on the non-bank investment is higher than the interest rate of the mezzanine lender, you earn a higher profit on the equity you invest in a project. Mezzanine lenders also allow you to spread your equity around in more projects, increasing the opportunities for your investments.
We have worked with mezzanine financiers and we know good contacts to help you bridge the gaps in financing your investments. If you need help putting a project’s financing together, contact us, and we’ll put you in touch with the best people.
Here is how it could work:
SVN Rock Advisors assists in financing for apartment developers, by way of Mezzanine Loans or Joint Venture Equity Participations, or both.
Mezzanine Loans are generally capped at the lesser of 85% of completed value or 90% of project costs.
Joint venture equity is provided selectively for up to 75% of the residual equity requirements of construction projects.
Joint Venture equity is structured on a senior preferred basis to the developer’s equity contribution, which may include free and clear land.