Financing · Mezzanine

Mezzanine capital

Capital between senior-ranking debt and sponsor equity – structured along ranking, source of repayment and security.

Mezzanine is an umbrella term for forms of capital between classic senior debt and pure equity. Depending on the structure, mezzanine can be closer to debt or closer to equity. In real estate financing it often serves to close the gap between senior-ranking debt and sponsor equity.

Economically, a mezzanine tranche may be structured as a subordinated loan, with PIK or current-pay components, with profit-participating remuneration or as an equity-like structure. Which variant is viable depends on the senior financing, the project status and the planned repayment.

Fox Capital describes and structures the economic parameters and runs the approach to capital providers. The legal and tax structuring must be agreed with the lawyers and tax advisers involved; Fox Capital does not provide legal or tax advice.

Suitable for

Developments with capital needs alongside the senior financing
Land acquisitions ahead of planning consent
Investors pursuing value-add strategies
Developers running several projects in parallel
Portfolio growth with limited own funds

Key facts

Mandate size: from € 10m
Ranking: subordinated or structurally junior
Structure: closer to debt or equity, depending on the case
Remuneration: current, capitalised or performance-linked
Security: structure-dependent, e.g. subordination, share pledge
First indication: targeted within 48 hours

Request terms

Benefits

Why this structure works

Completing the capital structure

Mezzanine fills the tranche between senior-ranking debt and sponsor equity and widens the structuring options.

Structural variants

Subordinated loan, PIK or current-pay components, profit-participating remuneration or equity-like elements – depending on the starting position.

Alignment with the senior side

Ranking, intercreditor terms and cash-flow waterfalls are negotiated so that the overall structure remains workable.

Use of own funds

Debt-like mezzanine can reduce the equity requirement without necessarily giving up shares. Other mezzanine structures may include participation or performance-linked elements.

Scalable

Tranches can be structured per asset or as a framework line across several projects.

Capital providers in competition

A parallel approach to suitable houses instead of a single negotiation – the basis for a meaningful comparison of offers.

Process

How we proceed

Step 01
Review of key figures
We assess costings, timeline, planning status and exit assumptions and evaluate the feasibility of a junior tranche.
Step 02
Structure proposal
Volume, ranking, term, security and remuneration structure defined in alignment with the senior financing.
Step 03
Lenders in competition
Parallel approach to suitable mezzanine funds, family offices and debt funds from our network.
Step 04
Term sheet & negotiation
Comparison of offers, renegotiation of covenants, fees, ranking and prepayment terms.
Step 05
Due diligence & closing
Support through review, documentation and drawdown – together with your legal and tax advisers.

From practice

What actually decides the deal

Terms follow the overall structure

What matters in particular is the senior financing, total leverage (LTC or LTV), sponsor equity, project status, cash flow or business plan, exit or refinancing scenario, security, ranking and intercreditor structure, and the sponsor's track record. Blanket ranges do not help here.

Repayment is reviewed first

Capital providers examine in particular from which cash flow, sale or refinancing event repayment is to be made, and what a downside scenario looks like. Two fully modelled scenarios are usually the sensible starting point.

Settle the ranking early

Junior tranches require alignment with the senior financing – subordination, standstill and intercreditor arrangements. The legal structuring belongs with the legal advisers involved.

Capture the full cost

Alongside current or capitalised interest, fees or performance-linked components may be relevant depending on the structure. Only the total view against the equity employed shows the economic effect.

Reporting is defined contractually

Scope and frequency of reporting – for example on construction progress, cost status and sales – are agreed case by case and should be producible internally.

Questions

What clients ask us most

The structures described are for general information. Availability, leverage, term, pricing, security and other terms depend on the asset, the borrower, the market environment and the specific financing. None of this constitutes a financing commitment.

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