Mezzanine Finance in Hackney
Reduce your equity contribution to as little as 10% of total project costs. Mezzanine finance provides the additional funding layer between your senior development loan and your equity, enabling you to take on more ambitious Tower Hamlets developments or preserve capital for multiple projects.
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Combined
90%
Loan to Cost
Equity From
10%
Developer Contribution
Rates From
1.0%
Per Month
Interest
Rolled Up
Paid at Exit
What Is Mezzanine Finance?
Mezzanine finance is a specialist form of secondary development funding that sits between the senior development loan and the developer's own equity in the project's capital structure. The term “mezzanine” comes from the Italian word for “middle” or “half-storey,” reflecting its position in the middle of the capital stack, above the senior debt but below the equity layer.
In practical terms, mezzanine finance allows Hackney developers to borrow more than the senior development loan alone would provide, thereby reducing the amount of their own capital they need to invest in the project. While a senior development loan typically covers 60-70% of total project costs, adding a mezzanine layer can increase total borrowing to 85-90% of costs, leaving the developer to contribute just 10-15% from their own resources.
The mezzanine lender takes a second charge over the development site, sitting behind the senior lender's first charge. Because the mezzanine lender is in a subordinate position and would be repaid after the senior lender in any enforcement scenario, mezzanine finance carries higher interest rates than senior debt, typically ranging from 1.0% to 1.5% per month. However, interest is rolled up and settled at project completion, meaning there are no monthly servicing costs during the build phase.
For ambitious Hackney developers, mezzanine finance is a powerful tool. It enables you to take on larger projects than your available equity alone would support, or to spread your equity across multiple concurrent developments, maximising your return on capital and accelerating portfolio growth.
The Capital Stack: Where Mezzanine Fits
Understanding where mezzanine finance sits in the capital structure is essential for structuring the optimal funding package for your Hackney development.
Without Mezzanine Finance
Developer Equity
Highest risk, captures profit
30%
Senior Development Loan
First charge, lowest risk
70%
With Mezzanine Finance
Developer Equity
Reduced equity requirement
10%
Mezzanine Finance
Second charge, medium risk
20%
Senior Development Loan
First charge, lowest risk
70%
Consider a 6-unit residential development in Hoxton with the following project economics:
Without Mezzanine
167% ROE
£600K equity required
With Mezzanine
400%+ ROE
£200K equity required
Important Note
While mezzanine finance dramatically improves ROE, the higher total finance costs reduce the absolute profit. The worked example above is simplified and does not include all finance costs. Always run a full project appraisal with accurate interest calculations before committing to a mezzanine structure.
Mezzanine Finance vs Stretched Senior Debt
Both options reduce your equity requirement, but they work differently. Understanding the trade-offs helps you choose the right structure for your Hackney project.
Separate senior and mezzanine lenders provide distinct facilities, each with their own terms and conditions. An intercreditor agreement governs the relationship between the two.
- Combined LTC up to 90%
- Two separate lender relationships
- Intercreditor agreement required
- Higher combined leverage achievable
- More complex legal structure
- Can access specialist mezzanine funds
- Blended rate typically 0.85-1.1% pm
A single lender provides a higher LTC facility, typically up to 80-85% of total project costs, eliminating the need for a second lender and intercreditor agreement.
- Combined LTC up to 80-85%
- Single lender relationship
- No intercreditor agreement needed
- Simpler legal structure
- Faster to arrange
- Fewer lenders offer this product
- Single blended rate typically 0.85-1.0% pm
Our Recommendation
For most Hackney developments, we first explore stretched senior options as they are simpler and often more cost-effective. If stretched senior cannot achieve the required leverage, or if the project needs funding above 85% LTC, we then structure a senior plus mezzanine arrangement. In some cases, we also consider “stretched mezzanine” from specialist funds that provide both the senior and mezzanine tranches through a single facility. We assess all options and recommend the structure that best serves your project's needs and economics.
The Intercreditor Agreement Explained
When a development project has both a senior lender and a mezzanine lender, an intercreditor agreement (ICA) is essential. This legal document establishes the rules of engagement between the two lenders and is one of the most critical documents in any mezzanine-funded development.
The ICA covers key areas including the priority of payment waterfall (senior lender is repaid first), the circumstances under which either lender can enforce their security, the mezzanine lender's right to “cure” a senior loan default (by stepping in to resolve the issue), standstill periods that prevent premature enforcement, and the consent requirements for any changes to either facility's terms.
Key ICA Provisions:
When Mezzanine Finance Is the Right Choice
Mezzanine finance is a powerful tool when used in the right circumstances. Here are the scenarios where it adds the most value for Hackney developers.
By reducing equity per project from 30% to 10%, you can spread your capital across three times as many developments simultaneously. For prolific Hackney developers, this accelerates portfolio growth significantly.
While total finance costs increase, the return on your invested equity is dramatically amplified. If your project has a healthy profit margin of 20%+ on cost, mezzanine finance can transform your ROE from strong to exceptional.
If you have identified a larger development opportunity in Hackney that exceeds what your available equity can support at 70% LTC, mezzanine finance bridges the gap, allowing you to take on the project without external equity partners.
Unlike equity partnerships where you share the profit (typically 20-50%), mezzanine finance charges a fixed interest rate. Your upside from the development remains entirely yours, minus the finance costs, which are known and quantifiable.
When a prime Hackney development opportunity arises but your equity is tied up in other projects, mezzanine finance can provide the gap funding needed to proceed without waiting for existing projects to complete.
When you have secured valuable planning permission that significantly enhances a site's value, mezzanine finance allows you to build out the scheme with minimal equity rather than selling the consented site at a lower profit margin.
Mezzanine Finance FAQs
Frequently asked questions about mezzanine finance for Hackney developments.
Other Finance Solutions
Mezzanine finance works alongside our other specialist property funding products. Explore the full range of solutions available for Hackney developers.
The senior development loan that forms the foundation of your capital stack. Up to 70% LTC with rates from 0.65% per month for Hackney projects.
Learn MoreFast short-term funding completing in 5-10 working days. Ideal for auction purchases, chain breaks, and light refurbishment projects across Hackney.
Learn MoreWhen you need to go beyond mezzanine, equity partners provide up to 100% of project costs in exchange for a share of the development profit.
Learn MoreMezzanine Finance Across Hackney
We arrange mezzanine finance for development projects throughout Hackney. Select your area to explore local development opportunities.
Need Mezzanine Finance for Your Hackney Development?
Reduce your equity requirement and maximise your return on investment. Our team will structure the optimal senior plus mezzanine funding package for your project.
- Combined LTC up to 90%
- Reduce equity to as little as 10%
- Intercreditor agreements arranged
- Specialist mezzanine lender panel
- Stretched senior alternatives explored
- Full project appraisal support