Let us help you secure subordinated debt in the form of mezzanine loans before your senior debt funds run out.
Mezzanine finance can help you avoid bringing on additional investors or preserve cash reserves that can be better deployed elsewhere. Like its architectural namesake, a mezzanine loan sits below your senior debt and above your private equity. Typically, these loans take the form of second mortgages on the property’s title, which is paid out after the senior debt (first mortgage) but before any equity is distributed.
Mezzanine finance delivers fast funds injections when needed, without having to dish out equity stakes to additional investors. Maintain control and stay motivated to maximise project profits (keeping more cash in your pocket).
A hybrid approach combining senior and junior debt lets you leverage your assets and equity beyond what the big banks will bear. Mezzanine loans can facilitate fast growth when you need it and free up your existing capital for your next venture.
When budget blowouts resulting from rising supply prices or unexpected delays throw a spanner in the works, mezzanine finance can help chart a path to project success while avoiding any debt defaults.
Because mezzanine loan arrangements require the documented consent of the senior funder, sometimes legal advice is needed. We work alongside Legali Law commercial solicitors for guidance on contractual and compliance issues.
Sometimes the senior funder (usually a bank) won’t approve a mezzanine facility. In this case, we work with borrowers to refinance their first mortgage to an institution that will accommodate the subordinated debt.
Mezzanine loans are often sought out when quick cash is required to handle unexpected developments. We’ve got the experience and access to lending options so you can get things signed off ASAP and keep your project pumping.
Because mezzanine finance attracts higher interest rates than traditional mortgages, it’s good to know we have one of Australia’s largest networks of funding options available to find you the most competitive option.
Securing the right block of land and getting it shovel-ready is the first critical phase of any property development project. When bidding wars or bureaucratic bungles balloon the budget, mezzanine finance provides a facility for finding the necessary funds.
Blowouts during the building phase are the bane of many a developer’s existence. Mezzanine debt can form the connector between your first mortgage and existing equity, funding essential materials, labour, and design variations as needed, or freeing up cash for your next project.
Expenses don’t end with closeout on the construction site. Mezzanine finance can come in handy to cover the cost of marketing your stock, ensuring you can maintain high standards and achieve optimal end results.
We’re always good to go. Connect with one of our brokers today to explore mezzanine finance options.
Mezzanine loans, are a specialised loan type categorised as ‘subordinated’ or ‘junior’ debt. Often taken out as second mortgages on a property asset, they are secondary to the senior debt (the traditional bank mortgage), meaning that in the event of a debt default and liquidation of the asset, the mezzanine lender is paid out only after the primary lender has been fully compensated.
As such, funders regard them as a riskier form of finance and charge higher rates of interest as a result.
Some property developers regard mezzanine finance as a last resort, only to be used when you are short of funds needed to complete a project. But even if you have the cash reserves to cover unplanned expenses or budget blowout, using mezzanine lending can help free up equity that enables you to take on additional projects, enlarging your pipeline for bigger overall profits.
| Traditional senior debt | Senior debt + Mezzanine finance | |
|---|---|---|
| Sales | $13,000,000 | $13,000,000 |
| Construction costs | $10,000,000 | $10,000,000 |
| Senior debt facility | $8,000,000 | $8,000,000 |
| Mezzanine debt facility | $0 | $1,000,000 |
| Equity contribution | $2,000,000 | $1,000,000 |
| Interest component – Senior debt | $500,000 | $500,000 |
| Interest component – Mezzanine debt | $0 | $200,000 |
| Total interest expense | $500,000 | $700,000 |
| Total costs | $10,500,000 | $10,700,000 |
| Profit | $2,500,000 | $2,300,000 |
| Profit % of costs | 24% | 22% |
| Profit % of equity | 125% | 230% |
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