Mezzanine Finance in Hammersmith

Mezzanine finance is a second charge loan that sits between the senior development finance facility and the developer's own equity in the capital stack. It is secured by a second legal charge over the development property, subordinate to the senior lender's first charge. Mezzanine finance allows property developers in Hammersmith to borrow a higher proportion of total project costs, reducing the amount of personal equity required to undertake a development. It is a well-established tool in the UK development finance market and is used by both emerging and experienced developers across all project types.

Without mezzanine finance, a typical senior lender would provide up to 65-70% of total project costs, requiring you to contribute 30-35% as equity. By adding mezzanine finance, which typically covers an additional 15-25% of costs, your equity contribution can be reduced to as little as 10-15% of total project costs. For a Hammersmith development with total costs of £2 million, this means the difference between needing £600,000-£700,000 in equity versus £200,000-£300,000, freeing up capital to invest across multiple projects simultaneously.

Mezzanine finance is priced higher than senior debt to reflect its subordinate position in the capital stack and increased risk. Typical monthly interest rates range from 1.0% to 1.5% per month, with arrangement fees of 1.5-2.5%. Many mezzanine lenders also require a profit share element, typically 10-30% of the developer's profit. While mezzanine finance increases your blended cost of capital, the reduced equity requirement can significantly improve your return on equity. For Hammersmith developments with strong GDVs, the mathematics often strongly favour using mezzanine to maximise leverage.

An intercreditor agreement (ICA) is a legally binding document that governs the relationship between the senior lender and the mezzanine lender. It establishes the priority of payments, the circumstances under which each party can enforce their security, standstill periods, and information-sharing requirements. The ICA is essential for mezzanine finance to work because it provides the senior lender with comfort that their priority position is protected, while giving the mezzanine lender defined rights and protections. We manage the intercreditor negotiation process to ensure both lenders are aligned and the developer's interests are safeguarded.

Mezzanine finance is available for most types of property development in Hammersmith, including new build residential schemes, office-to-residential conversions, refurbishment projects, and mixed-use developments. However, the project needs to meet minimum size requirements (typically £1 million or more in total project costs) and demonstrate sufficient profitability to absorb the additional cost of the mezzanine layer. Projects with strong GDVs relative to costs, such as riverside developments in W6 or regeneration-zone projects in White City, are particularly suited to mezzanine finance structures.

Mezzanine finance typically takes 2-4 weeks to arrange from initial application to credit approval. However, the timeline is often driven by the senior lender's process, as the mezzanine facility needs to be structured in alignment with the senior terms. We recommend engaging us early in the process so that senior and mezzanine discussions can run in parallel. For Hammersmith developments where we have pre-existing relationships with both senior and mezzanine lenders, we can often accelerate the process considerably by presenting a combined funding package from the outset.

Stretched senior debt is a single facility from one lender that covers a higher proportion of project costs (up to 75-80% LTC) compared to standard senior lending (65-70% LTC). Mezzanine finance involves a separate lender providing a second charge facility on top of the standard senior debt to achieve similarly high leverage. The advantage of stretched senior is simplicity, with one lender and one set of documentation. The advantage of a mezzanine structure is that it can access higher total leverage (up to 90% LTC) and offers more flexibility in structuring terms. The best option depends on your project specifics and priorities.

Not all senior lenders will accept a mezzanine charge behind their first charge facility. Some lenders have strict policies against secondary charges, while others are comfortable working with approved mezzanine providers under the terms of an intercreditor agreement. Our knowledge of which senior lenders on our panel are "mezz-friendly" is critical to structuring an efficient combined facility. We proactively match senior and mezzanine lenders who have established working relationships and standardised intercreditor agreements, which reduces legal costs and accelerates the process.