When your senior loan does not cover the full capital stack and you do not want to give up equity, mezzanine financing fills the gap. Willowbrook Capital structures mezzanine debt and preferred equity solutions for commercial real estate developers and investors in Connecticut who need to optimize their capital stack without sacrificing control of their project.
What Is Mezzanine Financing?
Mezzanine financing is a subordinate layer of debt that sits between the senior mortgage and the sponsor’s equity. It is typically secured by a pledge of the ownership interests in the property-owning entity (rather than the real property itself), and it carries a higher interest rate than the senior loan to reflect its subordinate position in the capital stack.
| Capital Stack Layer | Position | Typical Rate |
|---|---|---|
| Senior Mortgage | First lien on property | 6.00% – 7.50% |
| Mezzanine Debt | Pledge of LLC interests | 10.00% – 14.00% |
| Preferred Equity | Equity position with preferred return | 12.00% – 16.00% |
| Common Equity (Sponsor) | Residual upside | N/A |
When Does Mezzanine Financing Make Sense?
- Your senior loan covers 60-65% of capital needs and you want to reduce equity contribution
- You are bridging a funding gap on a development or value-add project
- You need to recapitalize a project mid-construction
- You are transitioning from a construction loan to permanent financing and need gap coverage
- You want to preserve cash for additional acquisitions rather than tying it up in one project
Mezzanine vs. Preferred Equity
Mezzanine debt is structured as a loan with a fixed term and interest rate. Preferred equity is structured as an investment in the ownership entity, with a preferred return and participation rights. The choice between the two depends on lender restrictions, deal size, and your exit strategy. We advise on which structure fits your deal best.
Project Types We Structure Mezzanine For
- Large multifamily and mixed-use development
- Value-add commercial acquisitions
- Ground-up construction projects
- Portfolio recapitalizations
- Bridge-to-perm transitions requiring gap coverage
Discuss Your Capital Stack with Willowbrook Capital
Mezzanine and preferred equity structures are complex — and the right structure depends entirely on your deal specifics. Call 860.944.4324 or email info@willowbrookcap.com to speak with our team about your capital stack. Read our full Connecticut Commercial Mortgage Guide