Second charge development loans used to plug a short-fall behind a Senior Debt facility, are known as Mezzanine loans in the UK.
What is Mezzanine Finance?
Mezzanine finance is secured by a second charge and used to “top up” the senior debt (first charge) facility if a developer does not have sufficient cash resources to make the project work using senior debt alone. Whilst senior debt can generally provide up to 65% of GDV or 80% of project costs, mezzanine lenders will top up to 90% of project costs, meaning the developer has to contribute 10% of project costs.
Mezzanine finance therefore is another type of development finance, which is used to give you more money than the “senior” lender can provide. As Mezzanine finance is secured by a second legal charged, and at a higher Loan To Value, it is more costly than senior debt.
Mezzanine property development finance is used to help bridge the gap between a development facility or loan, and the amount of equity or funds that a developer has to invest into the development. The Mezzanine Lender will need to take a second charge on the land and the development, and this is classed as a “junior” position, sitting behind the first charge or the ‘senior debt’ development finance lender.
Mezzanine funding allows the developer to put less equity or cash investment into the project.
Loans of up to 75% of the Gross Development Value, or
Loans of up to 90% of Total Project Costs (plus finance costs).
The Arrangement Fees charged by the Mezzanine Finance Providers are case by case and start from 1%
Interest Rates for Mezzanine Finance start from 12% per annum.
Exit fees are generally charged but again, case by case.
Minimum mezzanine loan size is £100,000, with no maximum loan size.
No profit share is generally required with mezzanine loans.
Up to 36 months terms available on larger schemes.
Mezzanine Funding is secured by a SecondCharge
It is essential for developers to be Experienced, to access mezzanine finance.
Full Detailed planning consent needs to be granted.
Valuation Reports & QS/ MS reports which are instructed by the senior lender, can also be utilised by and addressed to the Mezzanine Lender.
Available for residential and commercial property development schemes in England, Scotland and Wales
Personal Guarantees will be required.
Applicant Details, and Company name & number.
Directors & shareholders CV’s or experience details.
Development Site address.
Details of senior lender and copy of Senior Debt offer letter.
Copy of the planning consent.
Detailed Financial Appraisal and Cash-Flow.
Detailed build costs/ quote.
Schedule of Accommodation.
Full Details of the professional team (contractor, architect, structural engineer, CDM co-ordinator and so on).
Procurement Method. For example, Design & Build or Construction Management?
Comparable Sales details (or agent’s opinions) to support the GDV.