Mezzanine finance
Mezzanine finance to close the gap above your senior construction loan
Your senior lender will fund 60 to 75% of the project cost. Mezzanine finance tops that up to 85 to 90%, secured by a second mortgage behind the senior loan. You put in less cash, you keep your equity, and you keep the upside above the interest.
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What mezzanine finance is
Second-ranking debt that sits between your senior loan and your equity
Mezzanine finance is a second loan on a development. It ranks behind the senior construction loan and ahead of your own equity. It is secured by a second mortgage over the site. A deed of priority, signed by both lenders, sets who gets paid first and what each lender can do if the project goes wrong.
Developers use it because senior lenders cap their loan at a share of total development cost. Banks typically lend 55 to 65% of cost. Non-bank and private senior lenders typically go to 65 to 80%. The rest has to come from you. On a $10m project that can be $3.5m of cash locked up for two years. Mezzanine fills part of that gap and typically takes combined debt to 85 to 90% of cost.
It costs more than senior debt because it is repaid second. The trade is simple: you pay interest on the gap instead of handing a share of the profit to an equity partner. Mezzanine is one layer of the capital stack. For senior debt, preferred equity, residual stock and refinance, see our development finance hub. Or send us the deal and we will tell you whether mezz fits.
Worked example
A $10m project, with and without mezzanine
Same site, same build, same senior loan at 65% of cost. The only change is a mezzanine loan for 20% of cost.
| $10m total development cost | Without mezz | With mezz |
|---|---|---|
| Senior construction loan65% of cost | $6.5m | $6.5m |
| Mezzanine loan20% of cost, second mortgage | $0 | $2.0m |
| Your equityCash or land at value | $3.5m | $1.5m |
| Combined loan to cost | 65% | 85% |
| Profit before mezz costsNet sales of $12m less $10m cost | $2.0m | $2.0m |
| Mezzanine cost18% p.a., 18 months, capitalised, plus 2.5% fee | $0 | $665k |
| Your profit | $2.0m | $1.34m |
| Return on your equityOver the project, not annualised | 57% | 89% |
| If net sales come in 10% lowerReturn on your equity | 23% | 9% |
| Cash left for the next site | $0 | $2.0m |
Illustration only, with round numbers. The $10m cost includes land, construction, fees and senior interest. Mezzanine interest is capitalised monthly on the full $2m from day one. Your profit falls by the cost of the mezz, but you earn it on far less cash, and $2m is free for another project. The last rows show the other side: gearing works both ways. When sales come in lower, the mezz still gets paid in full before you do.
Indicative market bands, September 2026
Typical mezzanine terms in Australia
Typical ranges from published Australian lender and fund terms. Every deal is priced on the project, the sponsor and the senior loan it sits behind.
| Term | Typical | What it means for you |
|---|---|---|
| Loan to cost | 85 to 90%senior and mezz combined | The mezz tranche is usually 10 to 25% of total cost, stacked on top of whatever the senior lender will fund. The rest is your equity. |
| Interest rate | 14 to 22% p.a.higher for weaker projects | Experienced developers with presales and a fixed-price build sit near the bottom. Thin margins, no presales or a first project push it higher. |
| Establishment fee | 2 to 3%of the mezz limit | Usually deducted at settlement. Some lenders add a monthly line or admin fee, or an exit fee. Ask for all of them in the term sheet. |
| Interest | Capitalisedpaid at the end | No monthly payments through the build. Interest is added to the loan and repaid from sales or a refinance, so it compounds. Budget for it in the feasibility. |
| Term | Senior plus a tailoften 3 to 6 months longer | Matched to the senior facility with extra time for settlements, because the mezz is only repaid once the senior lender is out. |
| Profit share | Sometimesdeal by deal | Some mezz lenders take a lower coupon plus a share of profit, usually on larger or higher-risk deals. Compare the all-in cost, not just the rate. |
Bands reflect published Australian non-bank lender and fund terms as at September 2026. Loan to cost is measured against total development cost. The rate you are offered can sit outside these ranges. Ventas does not operate a fixed lender panel for mezzanine; each deal goes to the lenders active in that space at the time.
Mezzanine vs preferred equity
Debt or equity for the gap
Both fill the space between the senior loan and your equity. They are priced, secured and controlled differently.
| Mezzanine | Preferred equity | |
|---|---|---|
| What it is | Debt. A loan with a fixed coupon and a set repayment date. | Equity. An investment in the project entity with a target return. |
| Security | Second mortgage over the site, plus a deed of priority with the senior lender. | No mortgage. Rights sit in the shareholder or unitholder agreement for the project entity. |
| Priority | Repaid after the senior lender, before any equity. | Repaid after all debt, before your ordinary equity. |
| Typical cost | 14 to 22% p.a.plus 2 to 3% establishment | 16 to 25% targetoften with a profit share |
| Senior lender view | Needs consent and a deed of priority. Some senior lenders will not allow a second mortgage. | Often easier to get approved, because nothing new goes on title. |
| When it fits | A healthy margin, a senior lender open to a second mortgage, and you want to keep control and all profit above the coupon. | The senior lender will not accept a second mortgage, the gap is too big for mezz, or you are happy to share upside for more flexibility. |
Before you apply
What mezzanine lenders look at
Your track record
Completed projects of a similar size and type. Mezz lenders are last in line for repayment, so they back developers who have delivered before. A first project often suits a joint venture or preferred equity better.
Presales
Mezz follows the senior lender's presale position. More qualifying presales means less sales risk, which usually means a lower rate and a higher combined loan to cost.
A fixed-price build contract
A fixed-price contract with a builder who has the balance sheet for the job. Cost blowouts hit the mezz before they hit the senior lender, so cost certainty matters.
An independent QS
A quantity surveyor's report on the budget and contingency, and monthly sign-off of each draw. Mezz lenders often rely on the same QS as the senior lender.
A margin cushion
Profit left after every finance cost, including the mezz. The project needs to repay them even if sales come in well under the feasibility. Thin margins are the most common reason mezz is declined.
Senior lender consent
The senior lender has to agree to a second mortgage and sign the deed of priority. Mezz lenders prefer senior lenders they have worked with before, which is why the pairing matters.
The honest part
What can go wrong with mezzanine
Mezz is a good tool on the right project. On the wrong one it takes most of the profit. Know these before you sign a term sheet.
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It is expensive
Mezz is the most expensive debt in the stack, and capitalised interest compounds. In the worked example it costs $665k. If the feasibility does not still work after the mezz cost and a 10% fall in sales, do not do it.
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The intercreditor terms decide a lot
The deed of priority sets when the mezz can be paid, how long it must wait before enforcing, and whether it can buy out the senior lender. Senior lenders usually block mezz payments until they are repaid. Have your lawyer read it early.
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Cost overruns land on you first
If the build goes over budget, the senior lender will usually stop funding draws until the gap is filled, and neither lender is obliged to lend more. You fund the overrun. If you cannot, the mezz lender may have rights to step in and take control of the project.
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Delays cost twice
Every month late adds capitalised interest on both loans. Missing the repayment date can trigger default interest and extension fees. A realistic program with float is worth more than a sharp rate.
Not sure the numbers work with mezz?
Send us the feasibility. We will run it with and without mezzanine and preferred equity, and tell you straight if the project is better off without it.
Free mezzanine cost calculator
What a mezzanine loan costs over the project
Interest is capitalised monthly and compounds on the full amount from day one. Estimate only and not an offer of finance. Excludes line, admin, exit, legal and valuation fees and any profit share. Get indicative terms for real numbers.
Get my real numbersCommon questions
Mezzanine finance, explained
What is mezzanine finance?
Mezzanine finance is a second loan on a property development that sits behind the senior construction loan and ahead of your equity. It is secured by a second mortgage and a deed of priority with the senior lender. Developers use it to take combined debt to around 85 to 90% of total cost, so they put in less cash and keep ownership of the project.
How much does mezzanine finance cost?
In Australia, mezzanine for development typically costs 14 to 22% p.a., with an establishment fee of typically 2 to 3% of the loan. Interest is usually capitalised and repaid at the end, so it compounds over the build. Some lenders add line, admin or exit fees, or take a profit share. Weaker projects price above the range. Use the calculator above for an indicative total.
What is the difference between mezzanine and preferred equity?
Mezzanine is debt. It has a fixed coupon, a repayment date and a second mortgage, and ranks behind the senior loan. Preferred equity is an investment in the project entity with no mortgage. It ranks behind all debt but ahead of your equity, typically targets 16 to 25% and often takes a profit share. Senior lenders often find preferred equity easier to approve.
Does my senior lender have to agree?
Yes. Almost every construction facility prohibits a second mortgage without the senior lender's consent, and both lenders sign a deed of priority. Some banks will not allow mezzanine at all. Non-bank and private senior lenders are usually more open, and some offer a stretch senior loan that covers the same gap in one facility. We check the senior position before approaching mezz lenders.
Can I get mezzanine finance without presales?
Sometimes. Mezzanine follows the senior lender's presale position, so if a non-bank or private senior lender will fund with few or no presales, a mezz lender can sit behind it. Expect a higher rate and a lower combined loan to cost. The lender will lean harder on your track record, the build contract and the margin. With no presales, preferred equity is often the better fit.
How fast can mezzanine be arranged?
Indicative terms typically come back in 24 to 48 hours once we have the feasibility, the senior loan terms and the sponsor position. A formal term sheet typically follows within one to two weeks, subject to valuation. Settlement typically runs 3 to 6 weeks from term sheet. The deed of priority with the senior lender is usually the longest item, so start it early.