What Is Mezzanine Finance?

Mezzanine Finance for property is a type of funding which will typically sit behind the senior debt or first charge lender as it is often called. The mezzanine funding will enable a property developer to complete a development opportunity whilst having to put in less of his own money than would be required without the mezzanine financing. Here we will discuss What Is Mezzanine Finance?

Mezzanine finance enables a developer to complete  development, albeit the costs associated with mezzanine finance are typically more expensive than normal senior debt.

Terms Available for Mezzanine Finance

Mezzanine finance lenders will offer a variety of different terms depending on the experience of the developer, the margin on cost which the development opportunity has inbuilt and the area which the development is due to take place.

Most mezz lenders will offer a second charge facility behind the first charge and rates are available from 0.75%-2% per month from different lenders.

In terms of loan to cost (LTC) on the development, again this will vary depending on the lender, but Hertfordshire Business Funding have got facilities agreed at up to 90% loan to value (LTV) and 100% of loan to cost (LTC).

Most developers will look at mezzanine financing costs in conjunction with their senior debt, and will normally consider these facilities as a “blended” rate of finance.

For example if the senior debt facilities were priced at 4.5%, for 60% LTV, and the mezz was priced at 12% for 35% LTV and 100% LTC, then the blended rate may be between 7-9% depending on the proportionate sizes of the facilities.

Mezzanine Funding Underwriting

There are an increasing number of development finance funding organisations with increasing competition for facilities. The underwriting process is normally quite straightforwards with the lender evaluating the developer and also the project, making sure that there is suitable headroom in the opportunity.

Typically Mezzanine Finance will be available on a phased release basis, and so will be available once the developer and his team have achieved certain milestones as part of the development process.

Hertfordshire Business Funding specialise in complex and technical funding with a particular focus on property development funding. If you are seeking funding for your current development projects it would be an absolute pleasure to assist you with your funding requirements. Contact us today and we would be pleased to assist.

 

from Hertfordshire Business Funding https://www.hertfordshirebusinessfunding.com/what-is-mezzanine-finance/
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