What is a mezzanine real estate loan?

A mezzanine real estate loan is a type of financing that sits between senior debt (bank loan) and equity in the capital structure of a real estate project. It fills the funding gap when a developer's equity and senior bank loan together are insufficient to complete a project.

Position in the Capital Stack

• Senior Debt (Bank Loan): First priority, lowest risk, 8.5%–10%
• Mezzanine Debt: Second priority, medium risk, 14%–18%
• Preferred Equity: Third priority, higher risk, 18%–22%
• Common Equity (Developer): Last priority, highest risk, 20%+ return expectation

How Mezzanine Loans Work

• Provided by NBFCs, AIFs, or private credit funds not regular banks
• Secured against pledged equity shares in the project SPV, not direct asset mortgage
• Typically have a fixed tenure (12–36 months)
• May include equity conversion rights (warrants) for additional upside
• Repaid before equity but after senior debt in liquidation

Mezzanine real estate loans are a critical component of real estate project financing, enabling developers to bridge capital gaps while offering investors higher returns in exchange for subordinated risk. They require deep due diligence on project viability, developer credibility, and collateral quality to manage downside risk effectively.