What is mezzanine finance?
Mezzanine finance is a second-layer loan that sits behind the senior lender on a property development. It ranks below senior debt for repayment and above the developer’s own equity. In Australia, developers use it to push gearing past a senior lender’s limit, often toward 80% or more of total development cost, so they tie up less of their own cash in a single project.
How mezzanine finance works
That is the short answer. The detail matters, because mezzanine is the most expensive debt on most schemes and only earns its keep on the right project. This guide explains how the layer works, what it costs, who lenders sanction it for, and how it differs from stretched senior debt.
Windsor Finance is a property finance broker, not a lender. We hold no capital of our own and approve nothing. We arrange mezzanine and stretched senior structures through a panel of non-bank lenders and private credit funds. Every figure here is indicative; the lender confirms its own terms on application.
A development is funded in layers, and each carries a different risk and a different price. Senior debt sits at the bottom. It is secured by a first mortgage over the site, repaid first, and priced the cheapest. Your equity sits at the top. It is repaid last and takes the first loss if the project disappoints. Mezzanine is the layer in between, ranking behind the senior lender and ahead of your equity.
Because the mezzanine lender is repaid only after the senior debt is cleared, it carries more risk and prices for it. In exchange, you borrow more against the same project and commit less of your own cash. The lender usually secures its position behind the senior lender by a second mortgage or a charge, governed by an intercreditor deed that sets out who gets paid in what order. This repayment order, senior debt first and your equity last, is the capital stack, and it is why each layer prices differently.
A short example shows the point. A project carries a total development cost of $10m. The senior lender funds 80% of cost, so $8m, and asks you to find the remaining $2m as equity. A mezzanine facility supplies $1m of that gap, behind the senior debt. Your cash contribution drops from $2m to $1m, and the freed $1m can run a second project. The layer is drawn for the build and sell-down window, then repaid when the project sells or refinances. It is short-term, project-specific money, not a long-term facility.
Mezzanine is sometimes confused with preferred equity, which fills the same gap. The difference is structure. Mezzanine is debt, with a defined rate and a repayment obligation. Preferred equity is an equity position with a profit share or a preferred return. The preferred-equity and joint-venture structures available vary by project and lender appetite, so confirm what fits with a broker. Which fits depends on the project, lender appetite, and your tax and legal advice.
What mezzanine finance costs in Australia
Mezzanine is among the dearest money on a development. Indicative pricing runs roughly 15% to 22% per annum, often with a line fee or a profit share on top. Senior development debt, by contrast, sits indicatively around 7% to 11% per annum for established developers. The gap reflects the subordinated risk: the mezzanine lender absorbs loss before the senior debt does.
Read that rate against the term, not in isolation. The real question is not the headline rate but whether the extra gearing produces more profit than the layer costs. On a strong-margin scheme, freeing equity to run a second project can earn more than the mezzanine rate consumes. On a thin-margin scheme, the layer can quietly eat the profit you were chasing. Every figure here is indicative; the lender confirms the rate, the fees, and the gearing once it sees the feasibility, the security, and your track record.
The Australian regulatory position
Mezzanine development finance is business-purpose lending. Lending wholly or predominantly for business or investment purposes, other than residential property investment by an individual, is generally not regulated under the National Consumer Credit Protection Act 2009. A signed business-purpose declaration is the standard evidence. This is a different regime from consumer home loans, which are NCCP-regulated and overseen by ASIC with responsible lending obligations attached.
Windsor Finance arranges the funding. The equity structuring, the tax treatment, and the intercreditor arrangement between your senior and mezzanine lenders sit with your lawyer and accountant. The purpose of each deal is confirmed in writing before it proceeds. We do not provide legal, tax, or financial advice.
Key facts
- Mezzanine ranks behind the senior lender and ahead of your equity, so it carries more risk and prices higher than senior debt
- It lets you push gearing past a senior lender’s limit, often toward 80% or more of total development cost, tying up less of your own cash
- It is short-term, project-specific money drawn for the build and sell-down window, then repaid when the project sells or refinances
| Facility | Indicative rate | Position |
|---|---|---|
| Mezzanine (subordinated) | ~15–22% p.a.* | Behind senior |
| Senior development debt | ~7–11% p.a.* | First charge |
Cost calculator
Where mezzanine sits in the capital stack
A development is funded in layers, and each is repaid in a fixed order: senior debt first, your equity last. That order is the capital stack, and it is why each layer carries a different risk and a different price.
Secured by a first mortgage over the site, repaid first, and priced the cheapest. The bottom of the stack.
Sits behind the senior lender, usually by a second mortgage or charge under an intercreditor deed. Repaid second, prices higher.
The top of the stack. Repaid last and takes the first loss if the project disappoints.
Who qualifies for mezzanine finance
Mezzanine is for established developers with a track record across multiple completed projects. Senior and mezzanine lenders rarely sanction a mezzanine layer for an unproven operator, because higher gearing leaves less margin for a delivery error, and that error is what wipes out the subordinated lender first. If you are a first-time developer, the common path is a senior facility at lower gearing until you have a delivery record, or a capable equity or joint venture partner to fill the gap.
A track record across multiple completed projects. Higher gearing leaves less margin for a delivery error, and that error wipes out the subordinated lender first.
Planning approval, a sound feasibility and a capable builder. Lenders assess the project, not just the borrower.
A defined sale or refinance. A weak exit story sinks a mezzanine request faster than anything else, because the exit is how the subordinated lender gets repaid.
Enough profit in the scheme to carry the cost of the layer. On a thin-margin scheme, mezzanine can quietly eat the profit you were chasing.
Mezzanine versus stretched senior debt
There are two routes to higher gearing on a development, and they are often confused. Which is cheaper and faster depends on the lender and the project, so a broker models both and places whichever fits the feasibility.
Splits funding across two lenders: a senior lender at standard gearing, plus a mezzanine lender behind it. Reaches higher total gearing and brings in a specialist comfortable with subordinated risk, but needs an intercreditor deed.
A single lender funding a higher percentage of cost from one position, with no second layer. Usually simpler to document, with one lender and no intercreditor deed.
Is mezzanine finance right for your project?
Mezzanine works when three things line up. You have a strong-margin scheme that can carry the cost of the layer, your senior lender has capped gearing below what the project can support, and freeing your equity earns more elsewhere than the mezzanine rate consumes. It works against you when the margin is thin, the exit is uncertain, or you are reaching for gearing to rescue a project that does not stack up at lower gearing. The honest test is the feasibility, run both ways.
Mezzanine finance questions, answered plainly
What is mezzanine finance in simple terms? +
How much does mezzanine finance cost in Australia? +
How is mezzanine finance different from senior debt? +
Can a first-time developer get mezzanine finance? +
Is mezzanine finance regulated in Australia? +
Does it cost anything to explore mezzanine options? +
Talk to a development finance broker
A guide shows you the ranges and the mechanics. The fastest way to see whether a mezzanine layer makes your project work is a short call with a broker who can model it against real lender appetite. A Windsor broker will look at your feasibility, senior position, and equity gap, talk through the lenders most likely to fit, and come back with indicative structures so you know what is realistic before you commit. Bring the site details, the total development cost, your senior terms, the size of the equity gap, and a one-line exit plan. There is no charge to structure the deal and shortlist lenders, and every cost is disclosed in writing, up front, before you commit.