Mezzanine Debt

Definition

A subordinated loan that sits between first mortgage debt and equity in the capital structure, typically carrying higher interest rates and equity-like features. It's the compromise between debt and equity when a developer needs more money but can't get traditional financing.

Example Usage

The project required mezzanine debt of $5 million to bridge the gap between the first mortgage and the required equity contribution.

Origin

From 'mezzanine' meaning an intermediate level, borrowed from architectural terminology

Fun Fact

Mezzanine debt often includes kickers—arrangements where lenders receive equity upside—making failed projects catastrophically painful for developers.

Source: Real estate finance and development

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