Tap to get financing
Apartment Loans
Fannie Mae
Fannie MaeMultifamily Small Loan ProgramFannie Mae DUS Loans
Freddie Mac
Freddie MacSmall Balance LoansAffordable Housing Express Loans
FHA/HUD
HUD LEAN Loan ProcessingHUD 232/223(a)(7) Refinancing LoansHUD 232/223(f) LoansHUD 241(a) Supplemental LoansHUD 232 LoansHUD 223(a)(7) Refinancing LoanHUD 223(f) LoansHUD 221(d)(4) LoansHUD Apartment Loans
Non-agency
Life Company Apartment LoansHard Money Apartment LoansApartment Bridge LoansMezzanine FinancingSmall Apartment LoansBank LoansConstruction LoansCMBS Loans
Resources
BlogApartment Building InsuranceYield Maintenance CalculatorLoan Repayment CalculatorNOI CalculatorGross Rent Multiplier CalculatorDebt Service Coverage Ratio (DSCR) CalculatorDebt Yield CalculatorCash on Cash Return CalculatorCap Rate CalculatorBreak Even Ratio CalculatorApartment Mortgage CalculatorLoan To Value and Loan To Cost RatiosApartment Finance Due Diligence ResourcesHow to Purchase an Apartment Property
For Brokers
About us
TeamLeadership
(561) 556-9997
Get financing →
Newly Published
Jul 11 at Apartment Loans
Apartment Building Insurance: Comprehensively Protect Your Property
Nov 1 at Apartment Loans
What is Conduit Financing?
Sep 9 at Apartment Loans
Operating Expense Ratio Explained
Explore the Janover Network
May 8 at HUD Loans
The 2025 Developer's Guide to HUD Lender Matching
Apr 22 at Janover Inc. Investor Relations
Janover Inc. Announces Corporate Name Change to DeFi Development Corporation
Apr 16 at Janover Inc. Investor Relations
Janover Inc. to Host X Spaces Conversation on NAV Premiums
Was This Article Helpful?
Apartment Loans Secrets
1 min read
by Content Team

What is Mezzanine Financing?

Start Your Application and Unlock the Power of Choice Experience expert guidance, competitive options, and unparalleled industry expertise.
Click Here to Get Quotes →
$5.6M offered by a Bank$1.2M offered by a Bank$2M offered by an Agency$1.4M offered by a Credit UnionClick Here to Get Quotes!

Mezzanine Financing for Apartment Properties

Merchant builders who aim to maximize their IRR also need to maximize leverage, as the cost of equity is oftentimes more expensive than non-recourse debt. Alternatively, merchant builders may simply need more leverage to keep liquidity available for other unforeseen opportunities. When looking to build your capital stack, your first option should be a mezzanine loan and preferred equity.

Mezzanine Financing in multifamily is the middle ground between debt and equity financing. With a mezzanine loan, the lender reserves the right to convert to an equity interest in the subject property in case of default, but only after venture capitalists and any other senior lenders are paid. As such, mezzanine loans remain one of the highest-risk forms of debt for lenders, but also offer some of the highest returns in comparison to other debt types. Because of the nature of the loans, mezzanine financing often receives rates between 12% and 20% per year, and sometimes even as high as 30%. Mezzanine loans are often used by merchant builders looking to maximize their IRR while also maximizing leverage since the cost of equity is often more expensive than non-recourse debt.

Related Questions

What is mezzanine financing and how does it work?

Mezzanine financing in commercial real estate authorizes a lender to convert their debt into equity in the event that a borrower defaults. For example, if the borrower fails to pay the debt in a timely manner, the lender has the right to take action by taking a portion of the investment property and then selling it to pay off that debt. Mezzanine financing can be beneficial for both first-time commercial real estate property investors, but can also be ideal for those investors who are looking to expand their property, but do not have enough funds. Mezzanine loans typically have 1-5-year terms, though some may go up to 10. In addition, many mezzanine loans are interest-only.

Mezzanine loans provide a buffer between senior debt and the investor’s equity, allowing lenders to go higher on the capital stack than typical debt would allow. Structurally speaking, this debt is unique in that it comes with an equity conversion option. Basically, in the event of a default, it allows lenders the right to seize a “portion” of the investment property and sell it in order to recoup losses. Mezzanine loans typically have one- to five-year terms, though some lenders allow up to 10 years. Typically, mezzanine loans have a maximum Loan to Cost (LTC) of around 85%. Beyond that, mezzanine loans can be pretty flexible depending on the lender. Investors might be pleased to know that interest charged on mezzanine financing is tax deductible, and many of these loans are interest-only.

What are the advantages and disadvantages of mezzanine financing?

The advantages of mezzanine financing include flexible financing, low probability of losing ownership or control of a property, and quick closing. However, mezzanine debt is riskier due to a lack of collateral from the borrower, so interest rates tend to be higher (10-20%) and more covenants are included. Common convenants might include restrictions on taking cash out of the property as well as a prohibition on obtaining additional financing until the mezzanine loan has been repaid. Mezzanine lenders are usually granted a lien against the entity that owns the property.

The drawbacks of mezzanine debt include higher interest rates, lender-friendly covenants, not allowed or heavily restricted by agency lenders, high fees and additional legal costs, and lenders are granted a lien against the borrowing entity.

What types of commercial real estate projects are eligible for mezzanine financing?

Mezzanine financing is available for a variety of commercial real estate projects, including first-time investments, expansions, and construction projects. According to Commercial Real Estate Loans, mezzanine financing typically has 1-5-year terms, though some may go up to 10, and many mezzanine loans are interest-only. The minimum loan amount is $2 million, and the term is coterminous with the first lien. Leverage is up to 90% LTV on stabilized property and 85% LTC on construction, and nonrecourse options are available.

What are the typical terms of a mezzanine financing agreement?

Mezzanine financing typically has loan amounts of $3 million and up, with terms coterminous with the first loan (typically between 5-7 years). Interest rates are typically between 9% - 16% (interest only), and fees are 3% - 6%. Maximum LTV is 85%.

Before a CMBS borrower can finalize their mezzanine loan, both the original CMBS borrower and the mezzanine lender must typically sign an inter-creditor agreement, defining the rights and responsibilities of each lender to each other.

Mezzanine loans typically have 1-5-year terms, though some may go up to 10. In addition, many mezzanine loans are interest-only.

What are the risks associated with mezzanine financing for commercial real estate projects?

The risks associated with mezzanine financing for commercial real estate projects include debt being expensive and driving up blended debt cost, not being allowed by all lenders, being more expensive than equity, providing higher leverage, and having high fees and additional legal costs.

Debt can be expensive and drive up blended debt cost (Source 1). Not allowed by all lenders (Source 1). Cheaper than equity (Source 1). Provides higher leverage (Source 1). Interest is tax deductible (Source 1). Can be extremely expensive (up to 20% for some borrowers) (Source 2). Not allowed by all lenders (Source 2). High fees and additional legal costs (Source 2).

In this article:
  1. Mezzanine Financing for Apartment Properties
  2. Related Questions
  3. Get Financing
Tags
  • FAQ
  • Glossary

Getting commercial property financing should be easy.⁠ Now it is.

Click below for a free, no obligation quote and to learn more about your loan options.

Get financing →

Janover: Your Partner in Growth

At Janover, we offer a wide range of services tailored to your unique needs. From commercial property loans and LP management to business loans and services for lenders, we're here to help you succeed.

Learn more about Janover →
Commercial Property Loans

Get the best CRE financing on the market.

Explore Financing Options →
LP Management

Syndicate deals on autopilot with Janover Connect.

Discover LP Management →
Business Loans

Match with the right kind of loan, in record time.

Find Business Loans →
For Lenders

Supercharge your loan pipeline. Unlock more deals.

Boost Your Loan Pipeline →
Apartment Loans

Apartment Loans is a Janover company. Please visit some of our family of sites at: Multifamily Loans, Commercial Real Estate Loans, SBA7a Loans, HUD Loans, Janover Insurance, Janover Pro, Janover Connect, and Janover Engage.

Janover Tech Inc.

6401 Congress Ave
Ste 250
Boca Raton FL 33487
(561) 556-9997 
hello@apartment.loans

Loan Types

Bank Loans
CMBS
Construction Loans
Fannie Mae
Freddie Mac
HUD/FHA Apartment Loans
Commercial Loan Rates
For Commercial Mortgage Brokers

Site Information

Privacy Policy
Terms of Use


For Commercial Mortgage Brokers

This website is owned by a company that offers business advice, information and other services related to multifamily, commercial real estate, and business financing. We have no affiliation with any government agency and are not a lender. We are a technology company that uses software and experience to bring lenders and borrowers together. By using this website, you agree to our use of cookies, our Terms of Use and our Privacy Policy. We use cookies to provide you with a great experience and to help our website run effectively.

Freddie Mac® and Optigo® are registered trademarks of Freddie Mac. Fannie Mae® is a registered trademark of Fannie Mae. We are not affiliated with the Department of Housing and Urban Development (HUD), Federal Housing Administration (FHA), Freddie Mac or Fannie Mae.

This website utilizes artificial intelligence technologies to auto-generate responses, which have limitations in accuracy and appropriateness. Users should not rely upon AI-generated content for definitive advice and instead should confirm facts or consult professionals regarding any personal, legal, financial or other matters. The website owner is not responsible for damages allegedly arising from use of this website's AI.

Copyright © 2025 Janover Tech Inc. All rights reserved.

+

Fill out the form below and get the pricing and terms banks can't compete with.