- 8th April 2019
- Posted by: DMM
- Category: Development Finance
A mezzanine loan provides an additional equity injection into a property development and can be crucial to a developer; but where are the best mezzanine loan rates?
What is Mezzanine Funding?
Property development mezzanine funding is additional capital that can bridge the gap between the senior debt finance, often up to 60% of costs and the developers available cash equity, which may be as little as 10%. Therefore, mezzanine funding can help complete a successful funding package that will enable a development to happen that otherwise might not.
Typical Lending Criteria and Best Mezzanine Funding Rates
Mezzanine funders are taking a higher risk than the first charge senior banks and, understandably, will charge interest rates that will reflect this. Such rate can be anywhere from 12% to 30% per annum and may even be compounded. Nevertheless, if the alternative means not doing a project at all then such rates may be worthwhile.
Mezzanine funding criteria will range from:
- Up to 90% of cost
- Gross debt of up to 70% of GDV
- Terms from 6 to 24 months
- Usually experienced developers only with a proven track record
- Planning permission in place
As well as considering the annual interest rates from mezzanine loan providers, a borrower should also take into consideration additional costs which may include:
- An additional formal valuation (or the readdressing of an existing valuation)
- Additional legal fees
- Formal site visit or commitment fees
- The mezzanine lender may also wish to have the own QS monitoring
- Arrangement and exit fees
Nevertheless, mezzanine funding has its place in enabling property developers to achieve their goals and just requires searching the market for the best options.
Developer Money Market can assist with raising finance for property development by comparing the different mezzanine loan products available for your project. Simply enter the key information about you and the project and we will match against the available loan facilities.