Mezzanine Finance

Maintain full ownership of your project while reducing your equity contribution. Mezzanine finance fills the gap between your bank loan and your cash, unlocking up to 90% of total project costs. We help you structure facilities from $2M to $50M+ through specialist Australian commercial property lenders.

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Mezzanine finance

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Mezzanine Finance — Overview (Last reviewed 01 March 2026)

Nadine Connell — Commercial Finance Broker
Written & reviewed by · Specialist in mezzanine finance and complex development capital structures
MFAA Member CR 553930

Pricing & Returns

  • Rate Range: 15.00% - 30.00%
  • Arrangement Fee: 2% - 4%
  • Loan-to-Cost: 85–95% combined stack
  • Facility Term: 12 - 36 months

Capital Structure

  • Senior Debt: 60–70% of costs
  • Mezzanine Layer: 80% - 90%
  • Equity Required: 10% - 20%
  • Interest: Capitalised (rolled-up)

Loan Amounts & Speed

  • Loan Range: $2M – $50M+
  • Settlement: 14-28 days
  • Lender Panel: 60+ specialist lenders
  • Project IRR: 20%+ target returns

All information is general guidance only. Your actual rates and terms might be different. Not financial advice. Please read our important disclaimer.

What Is Mezzanine Finance?

Mezzanine finance is a type of commercial property loan that sits between senior debt (your primary bank loan) and the developer's own equity. In practice, it functions as a second mortgage over the property, allowing you to borrow beyond what a traditional lender will offer — typically taking total leverage from 70% up to 90% of project costs. Because the mezzanine lender accepts a subordinate position behind the senior lender, rates are higher — generally 15.00% - 30.00% p.a. in the current Australian market.

To put it simply, most banks will fund 65–70% of a commercial property project. You're expected to contribute the rest as equity — your own cash. For a $10 million development, that means finding $3 million or more out of pocket. Mezzanine finance fills that gap. Instead of tying up $3 million in a single project, a mezzanine facility might cover $2 million of that shortfall, leaving you with just $1 million in equity required. As a result, your capital goes further and you can potentially run multiple projects simultaneously rather than having everything locked into one.

However, that flexibility comes at a cost. Mezzanine rates are significantly higher than standard commercial property loan rates because the lender carries more risk. If a project fails, the senior lender gets repaid first. The mezzanine provider only recovers what's left after the bank has been made whole. For this reason, mezzanine lenders look very closely at project feasibility, developer track record, and exit strategy before committing funds.

How Does Mezzanine Finance Work in Practice?

The easiest way to understand mezzanine finance is through a real capital stack. Consider a $10 million commercial development project:

  • Senior debt (first mortgage): $7 million at 7.5% p.a. — the bank funds 70% of the project
  • Mezzanine debt (second mortgage): $2 million at 15% p.a. — a specialist lender fills the gap
  • Developer equity: $1 million — your cash contribution drops from $3 million to $1 million

In this structure, the combined loan-to-cost ratio reaches 90%. The senior lender holds first priority over the property, while the mezzanine provider holds a second-ranking mortgage. An intercreditor agreement between the two lenders governs the relationship — essentially, it defines who gets paid first if things go wrong and what happens if either party needs to enforce their security.

Importantly, most mezzanine facilities in Australia use capitalised interest. That means you don't make monthly repayments on the mezzanine portion during the project. Instead, interest accrues and is repaid along with the principal when the project completes — either through sales proceeds, refinancing, or a combination of both. In effect, this preserves your cash flow during the construction or development phase when revenue is typically zero.

Mezzanine finance isn't for every situation. It works best when the project returns comfortably exceed the blended cost of both the senior and mezzanine debt. For a developer weighing up whether the additional interest expense is worth the reduced equity requirement, the key question is straightforward: does paying 15% on borrowed money generate a better return than tying up that same cash yourself? If your project is targeting 25–30%+ margins, the numbers often stack up. If margins are tighter, a standard commercial property loan with a larger equity contribution may be the more cost-effective path.

Structuring Mezzanine Finance For Your Project

Mezzanine finance bridges the gap between senior debt and equity, unlocking 85–95% of total project costs when traditional lenders cap out at 70–80%. In essence, it’s the sophisticated funding layer that lets developers preserve equity while accessing the capital needed to execute ambitious projects, without diluting ownership or bringing in joint venture partners.

Importantly, successful mezzanine deployment requires three celements:

  • Precise capital stack optimisation and IRR modelling
  • Securing competitive pricing across senior and mezzanine tranches
  • Structuring intercreditor agreements that protect all parties

Our direct relationships with mezzanine providers can mean access to institutional pricing, streamlined due diligence, and intercreditor terms typically reserved for tier-one developers. As a result, even mid-market projects can benefit from the same structuring expertise. Book a free 30-minute consultation to explore how mezzanine finance can enhance your project returns.

Who Uses Mezzanine Finance?

Institutional Developers Maximising leverage on flagship projects while preserving equity — achieving 20–30% IRR through strategic capital structuring
High Net Worth Syndicates Pooling sophisticated investor capital with mezzanine leverage — targeting premium returns without diluting control or profit share
Private Equity & Fund Managers Deploying mezzanine within complex capital stacks — optimising returns across multiple projects while maintaining portfolio flexibility
mezzanine finance

We help structure deals from $2M to $50M+ in mezzanine tranches, supporting everything from boutique developments to landmark commercial projects. Specifically, we work across four categories of mezzanine provider:

  • Institutional mezzanine funds – Competitive pricing for $5M+ requirements with proven sponsors
  • Private credit funds – Flexible terms for complex projects and shorter timeframes
  • Family offices – Patient capital with bespoke structuring capabilities
  • Specialist property lenders – Integrated senior and mezzanine facilities from single sources
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When Does Mezzanine Finance Make Sense?

Six scenarios where subordinated debt can strengthen your capital structure

Bridge the Equity Gap

$2M–$20M typical

  • Senior debt capped at 65–70% LVR
  • Preserve cash for other projects
  • Avoid diluting ownership or control
  • Example: $10M project — $7M senior, $2M mezzanine, $1M equity

Run Multiple Projects at Once

$5M–$50M+ portfolio

  • Deploy capital across 3–4 developments
  • Maintain a diversified project pipeline
  • Maximise IRR on deployed equity
  • Example: Leverage $5M equity into $50M+ of active projects

Reduce Pre-Sales Requirements

$3M–$30M facilities

  • Proceed with fewer pre-sale commitments
  • Start construction sooner
  • Capture rising market conditions
  • Example: Launch with 0–20% pre-sales vs the typical 50% bank threshold

Avoid Joint Ventures

$2M–$25M tranches

  • Maintain 100% ownership and profit
  • Keep full decision-making control
  • No equity dilution or profit-sharing
  • Example: Pay a fixed mezzanine rate vs giving away 40–50% of project profit

Stretch Beyond Senior Debt Limits

$2M–$40M mezzanine

  • Banks cap at conservative LVRs
  • Complex or non-standard developments need more
  • Specialist assets with limited comparables
  • Example: Access 85–90% total funding on qualifying projects

Move Quickly on Acquisitions

$2M–$50M+ deals

  • Tight settlement deadlines on site acquisitions
  • Competitive bid or off-market situations
  • Pre-approved mezzanine lines for repeat sponsors
  • Example: Secure site with mezzanine commitment in 2–4 weeks, then refine the senior facility

All scenarios are illustrative. Your actual rates and terms will depend on project specifics and risk profile. Not financial advice. Talk to our team for an accurate assessment.

Nadine Connell — Commercial Property Finance Specialist at Smart Business Plans
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Mezzanine Finance Rates, Terms & Structures

Rate Range
15.00% - 30.00% p.a.
Total LTC
80% - 90%
Facility Term
12 - 36 months
Minimum Size
$2M+
Project Scenario
Typical Rates
Total LTC
Terms
Key Features
Residential Development
15–18%
85–90%
12–24m
Minimal pre-sales · Rolled-up interest · Clear exit
Commercial Projects
16–22%
85–90%
18–36m
Tenant pre-commitments · Higher yields · Refinance exit
Land Banking
18–24%
80–85%
12–18m
Strategic acquisitions · DA upside · Capital preservation
Opportunistic Acquisitions
20–26%
85–90%
12–18m
Competitive bids · Minimal equity · Bridge to refinance
Distressed / Special Situations
24–30%
75–85%
6–12m
Workout scenarios · Rescue capital · Turnaround funding
Senior Debt
60–70%
Mezzanine
15–25%
Equity
5–15%
Blended Cost
9–13% p.a.
Capital Layer
Typical Range
Key Terms
Senior Debt (1st Mortgage)
60–70% of costs
5–9% p.a. · First ranking · Bank or non-bank
Mezzanine (2nd Mortgage)
15–25% of costs
15.00% - 30.00% p.a. · Second ranking · Rolled interest
Preferred Equity
10–20% of costs
15–25% IRR · No security · Profit participation
Developer Equity
5–15% of costs
25–40% target IRR · Last in, first out
Total Project Funding
80% - 90% LTC
Blended cost 9–13% · Multiple tranches

Intercreditor Agreement: Defines payment priority and rights between senior and mezzanine lenders

Payment Structure: Most mezzanine interest is capitalised (PIK) and paid at exit

IRR Enhancement: Using mezzanine can boost equity IRR from 25% to 35–45%

Exit Requirements: Clear refinance or sale strategy is essential for mezzanine approval. For shorter-term capital needs, bridging finance may suit better.

Provider Type
Rate Range
Best For
Institutional Funds
15–18% p.a.
$5M+ deals, proven sponsors, flagship projects, lowest rates
Private Credit Funds
18–22% p.a.
$2–10M deals, flexible terms, complex structures, mid-market
Family Offices
18–24% p.a.
Bespoke structures, patient capital, relationship-driven, long-term
Specialist Lenders
22–28% p.a.
Fast execution, minimal requirements, opportunistic situations
Integrated Providers
9–13% blended
Single source senior + mezz, simplified process, one relationship

Deal Size Matters: Institutional funds typically require $5M+ mezzanine tranches

Speed vs Price: Faster approval usually means higher rates (2–3% premium)

Relationship Value: Repeat sponsors often secure 1–2% rate discounts

Structure Flexibility: Some providers offer equity kickers to reduce the cash rate. For development projects, structuring both senior and mezzanine together often unlocks better terms.

All scenarios are illustrative. Your actual rates and terms will depend on project specifics and risk profile. Not financial advice. Talk to our team for an accurate assessment.

The Five Mezzanine Finance Stages

1
Capital Stack Assessment
Analyse senior debt limits, identify the funding gap, model IRR enhancement, and determine optimal mezzanine size.
2–3 days initial review
2
Terms Negotiation
Secure indicative terms, compare providers, negotiate rates, and agree intercreditor principles with the senior lender.
1–2 weeks to terms
3
Due Diligence & Approval
Feasibility verification, valuation review, sponsor assessment, credit committee approval, and formal offer issued.
2–3 weeks diligence
4
Documentation & Settlement
Execute loan agreements, finalise the intercreditor deed, register second mortgage, and coordinate simultaneous settlement.
1–2 weeks to settle
5
Exit & Repayment
Project completion, sale or refinance execution, senior debt repaid first, then mezzanine plus rolled interest repaid.
12 - 36 months typical
💡 Important for Sophisticated Investors:

Capitalised interest: Most mezzanine facilities feature PIK (payment-in-kind) interest throughout the term, maximising cash flow for project execution.

Intercreditor agreement: This is the critical document — it defines payment waterfalls, step-in rights, and enforcement procedures between senior and mezzanine lenders.

Sponsor requirements: Most mezzanine providers require a proven developer track record and 20%+ project margins.

Exit strategy: Must be robust, as both senior and mezzanine debt require repayment at project completion. For shorter capital needs, bridging finance may be more appropriate.

All scenarios are illustrative. Your actual timeline will depend on project specifics and lender requirements. Not financial advice. Talk to our team for an accurate assessment.

Mezzanine Impact Calculator

See how mezzanine finance can boost your development returns

All development costs including land

Gross profit before finance costs

Total project duration

First mortgage rate (p.a.)

Second mortgage rate (p.a.)

Senior debt % of total costs

Mezzanine % of total costs

Without Mezzanine

Senior Debt $0
Equity Required $0
Finance Cost $0
Net Profit $0
0%
Return on Equity (p.a.)

With Mezzanine

Senior Debt $0
Mezzanine $0
Equity Required $0
Total Finance Cost $0
Net Profit $0
0%
Return on Equity (p.a.)

Mezzanine Finance Impact

0%
Less Equity Required
+0%
ROE Improvement (p.a.)
$0
Cash Preserved
0x
Return Multiple

Disclaimer: This calculator is provided for illustration purposes only and does not constitute financial advice or a loan offer. Calculated figures are estimates only, may be inaccurate, and do not reflect actual lender terms or fees. Actual loan amounts, rates, repayments, and eligibility will vary based on your specific circumstances and lender assessment. Do not base any financial decisions on this calculator. Contact our team for a tailored quote.

Client Story

How a $1.8M Equity Gap Nearly Killed a $12M Townhouse Project

Completed townhouse development funded with mezzanine finance arranged by Smart Business Plans
$2.4M Equity saved
85% Total LTC
40%+ Return on equity
Zero Pre-sales required

James had the DA. He also had the builder, three completed projects behind him, and a site in Western Sydney that ticked every box. However, what he didn't have was enough equity to get the deal over the line.

Specifically, the project was a 16-lot townhouse development with $12 million in total costs, including land, construction, holding costs, and a reasonable contingency. Although his senior lender offered 65% loan-to-cost, that still left James needing $4.2 million in equity. At that point, he had just $1.8 million in available cash.

As a result, the gap was $2.4 million. Without it, the project simply wouldn't proceed.

The obvious options weren't good options

Firstly, James explored the usual alternatives. For instance, a JV partner offered to fill the gap, but in exchange for 40% of the profits. On a project forecast to deliver $2.8 million in profit, that effectively meant handing over more than $1.1 million. Similarly, another developer suggested he sell down some lots pre-construction, although that approach would cap his upside and also slow the DA timeline.

Meanwhile, his accountant mentioned mezzanine finance but wasn't sure how it actually worked. Conversely, his bank said they "don't get involved in that sort of thing." Eventually, James came to us because he'd heard we'd structured similar deals before.

Finding the right mezzanine provider

Not every mezzanine lender would touch this deal. In particular, the project had zero pre-sales because James planned to build and sell, rather than sell off the plan. That consequently eliminated several institutional funds that typically require 50–80% pre-commitments.

For this reason, we approached three providers from our panel. One declined on pre-sales grounds. Another offered terms but additionally wanted a personal guarantee over James's family home, which he understandably wouldn't accept. However, the third — a specialist private credit fund — approved the facility within two weeks. Above all, they were satisfied by three things: James's track record, the 24% forecast project margin, and the site's location in a corridor with strong comparable sales.

The terms were as follows: 20% of total project cost ($2.4 million) at 18% per annum, capitalised. In practice, that meant no monthly interest payments during construction. Furthermore, the facility would sit behind the senior debt as a second mortgage, governed by an intercreditor deed that was negotiated simultaneously alongside the first mortgage.

What the numbers actually looked like

Once the mezzanine was in place, James's capital stack worked out accordingly: 65% senior debt at 7.5%, 20% mezzanine at 18%, and just 15% equity, which in this case was $1.8 million of his own money. Although the blended cost of capital was certainly higher than a senior-only deal, the return on his actual equity was dramatically better.

To illustrate, without mezzanine James would have needed $4.2 million in equity and earned roughly 25% annualised return on that capital. In contrast, with the mezzanine layer he deployed only $1.8 million. Even after all finance costs including the 18% mezzanine rate, his annualised return on equity came in above 40%.

More importantly, the $2.4 million he didn't tie up in this project subsequently funded a concurrent duplex development in another suburb. In effect, one project became two.

How it played out

Construction completed in 14 months, roughly on schedule. Shortly afterward, James sold 12 of the 16 lots within the first four months of marketing. Because the intercreditor deed governed the payment waterfall, the senior lender was repaid first from settlement proceeds. Then the mezzanine facility (plus rolled interest) was cleared in full. Additionally, James retained the remaining four lots as rental investments.

All things considered, total profit after all finance costs came to approximately $2.1 million on $1.8 million of deployed equity. Besides that, the duplex project he funded with the freed-up capital added another $380,000.

"The mezzanine cost me about $650,000 in interest over the project. By comparison, a JV partner would have cost me $1.1 million. And I kept full control of every decision — spec, marketing, timing. In the end, that's worth something too."

Every development has a different optimal capital structure. Whether mezzanine makes sense for your project depends on your margins, timeline, pre-sales position, and track record.

Book your free consultation

This scenario is illustrative and based on typical deal structures we see in the Australian market. It does not represent a specific past transaction. Names and identifying details have been changed. Actual rates, terms, and outcomes vary based on project specifics and lender assessment. Not financial advice.

Ready to Get Started? Our 3-Step Mezzanine Process

From initial assessment to settlement, here's exactly how we structure the optimal mezzanine solution for your project.

1

Assess Your Capital Stack

Free Strategy Session

Firstly, we analyse your project's total cost, senior debt limits, and return targets. Based on this, we model how mezzanine can enhance your return on equity while also preserving cash for other opportunities. In addition, we identify which lender types are the best fit for your specific deal structure.

  • Model optimal capital structure
  • Calculate ROE enhancement
  • Identify best mezzanine providers
2

Negotiate Terms

Expert Structuring

Next, we negotiate with institutional funds, private credit providers, and family offices to secure the best available pricing and terms. At the same time, we coordinate the intercreditor agreement between your senior lender and the mezzanine provider, because this document governs how both facilities work together.

  • Competitive rate negotiations
  • Intercreditor coordination
  • Flexible exit terms
3

Fast Settlement

2–4 Week Timeline

Finally, we coordinate documentation between both lenders for simultaneous settlement. Once the facility is in place, we continue to monitor your exit strategy and refinance opportunities, so that you're always positioned for the most cost-effective transition out of the mezzanine layer.

  • Documentation management
  • Simultaneous settlements
  • Exit strategy support
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Benefits of working with us

Stronger Application

We'll work with you to develop a strong application profile, improving your chances of a successful application. We'll also call out any issues or gaps early. Your business plan and cash flow projections are also include

Best Possible Terms

We compare multiple lenders and present suitable options from our extensive development finance lender panel. We consider loan features like rates & terms, payment flexibility and approval timeframes. 

Help Avoid Mistakes

We help you avoid the common mistakes people make every day. From getting stuck with high rates to having loan applications rejected because the information wasn't structured the right way for the lender.  

Frequently asked questions

We find that many senior lenders are comfortable with mezzanine if it’s properly structured. We can help negotiate intercreditor agreements that protect both lenders’ interests. If your current bank won’t accommodate mezzanine, we have relationships with 60+ lenders, many of whom will be happy to review your needs. In some cases it’s possible to find lenders that will offer to integrate senior and mezzanine facilities from a single source, eliminating intercreditor issues entirely.

The typical application documents required for mezzanine finance include a detailed project feasibility showing at least a 20%+ profit margin, a senior debt approval or terms sheet, any evidence of development experience (past 3-5 projects), your company and personal financials, and a clear exit strategy (pre-sales, refinance, or hold plan). Current project status (meaning DA, construction contract, QS report etc) may also be needed. We can help package everything to institutional standards.

Most mezzanine facilities we work with have minimum terms (which are typically 6-12 months), with interest charged for that period regardless of any early repayments. Unlike traditional commercial loans though, there are usually no complex break costs. Some providers offer more flexibility with monthly interest payments allowing earlier exit. We negotiate the most flexible terms possible during structuring.

It depends. While mezzanine rates (15-30% p.a.) might seem high at first glance, the total cost is often less than giving away 50% of profits to a JV partner. For example, on a $3M profit project, 18% mezzanine might cost $600K in interest, while a 50/50 JV costs $1.5M in profit share. Moreover, you maintain 100% control and ownership. Mezzanine is debt that gets repaid, not permanent equity dilution.

Most institutional mezzanine funds require minimum tranches of $5M, which are generally suitable for projects around $20M+. However, some private credit funds and family offices can work with $2-3M mezzanine pieces for $10M+ projects. For smaller developments, integrated senior and mezzanine facilities from specialist lenders may be more suitable. We can help you match to the right lender based on your project size.

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Book Your Free Consultation
Call 1300 262 098
Call 1300 262 098
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