Mezzanine funding (or second mortgage funding), is ideal for property developers who want to preserve their own equity and do not want to bring in a Joint Venture partner.
Mezzanine funding is the term used for funding the gap between your primary or first mortgage and the total development costs. By definition, a mezzanine loan is a hybrid of debt and equity and is subordinated to any senior lender. Given the subordinated nature of mezzanine finance, the mezzanine lender usually receives a higher rate of interest for a higher level of risk. Mezzanine finance can often result in the full funding of the equity required to complete the project, the soft costs of the project, and any ongoing charges and taxes payable during the course of construction.
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 property development.
Benefits of Mezzanine Finance and Preferred Equity
Mezzanine Finance and Preferred Equity are ideal solutions when needing to acquire additional capital to complete a project. The benefits of Mezzanine Finance and Preferred Equity solutions with Development Finance Partners include:
- Bring your project to market sooner
- Lower the amount of pre-sales required
- Precious cash is free to drive the rest of the developer’s pipeline
- You can actually decrease portfolio risk by increasing diversification and increasing your liquidity
Mezzanine Finance and Preferred Equity: Case Studies
Key examples of successful Preferential Equity and Mezzanine Finance solutions that Development Finance Partners have facilitated include:
- How A Preferential Equity Solution Delivered a 56% Increase In Profits
- Refinance of existing mezzanine debt for a large Western Australian developer
- Construction Funding for Residential Apartments, Brisbane ($13M loan, 90% development costs)
Discover Development Finance Partners’ case studies of successful Mezzanine Finance and Preferred Equity solutions.
Mezzanine Finance and Preferential Equity: Customer Testimonials
“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
Contact us for Mezzanine Finance and Preferred Equity solutions
Get in touch to discuss Mezzanine Finance and Preferential Equity funding for your development or portfolio.