Mezzanine funding (or second mortgage funding), is ideal for Developers who want to preserve their own equity and don’t want to bring in a Joint Venture partner.
By definition a mezzanine loan is a hybrid of debt and equity and is subordinated to any senior lender. Given its subordinated or second ranking position the mezzanine lender usually receives a higher rate of interest for a higher level of risk. This allows for sufficient capital to fund opportunity purchasers of land or key staff to build the development pipeline and operations capacity to deliver on its commitments.
Most successful Property Developers use mezzanine finance once their projects have de-risked with DA and pre-sales achieved. They do this to settle the land, finalise design and approvals, fund sales and marketing costs to achieve pre-sales. This is the most sustainable use of mezzanine finance.
The Benefits of Mezzanine/Preferential Equity Finance
- Bring your project to market sooner
- Lower the amount of pre-sales required
- Precious cash is free to drive the rest of the developers pipeline
- You can actually decrease portfolio risk by increasing diversification and increasing your liquidity
Key examples of successful preferential equity/mezzanine finance solutions that Development Finance Partners have facilitated include:
- How A Preferential Equity Solution Delivered a 56% Increase In Profits
- Refinance of exisiting mezzanine debt for a large Western Australian developer
What our clients say about our Preferential Equity and Mezzanine Finance Solutions
“If you’re prepared to fund a lot of the extra expenses to get yourself to that point it’s sensational, because you get a lot more profit at the back end”.
“It’s definitely something we’d consider again”.
Warren Swanston, Visie Properties
Case StudiesConstruction Funding for Residential Apartments, Brisbane ($13M loan, 90% development costs)
Preferential Equity vs Joint Venture Funding
Preferential Equity – Medium density development