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Mezzanine debt is provided by a lender who assumes a second trust position, standing in place behind the first trust debt provider. Within the overall capital stack, if the first trust debt holder provides a loan at 75% loan-to-value, the mezzanine lender will assume second trust position and provide financing up to, or in excess of, 85-90% of the capital structure.
Mezzanine loans typically have a high preferred interest rate hurdle and a duration of 3-5 years at which point the project has some type of capital event such that the mezzanine loan is paid off. The advantage to securing mezzanine debt is that it can ultimately be cheaper than raising additional private equity and can result in a lower weighted average cost of capital. The primary disadvantage is the high pay rate. Certain mezzanine lenders have a better understanding of the advantageous risk profile provided by high-performance green projects and adjust their proceeds and interest rates accordingly. Please contact us to discuss your specific capital requirements.
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