How commercial mezzanine finance works in the UK capital stack

In any commercial property development or acquisition, the funding comes from multiple sources stacked in layers. Understanding where commercial mezzanine finance sits - and what it does - is essential before deciding whether it is the right tool for your project.

The three layers of the commercial property capital stack

• Senior debt (first charge) - provided by a specialist development lender or bank, typically covering 60–65% of the Gross Development Value (GDV). This is the cheapest money in the stack but has the strictest criteria and the first legal charge on the security
• Commercial mezzanine finance (second charge) - sits between senior debt and equity, bridging the gap. Mezzanine lenders typically fund an additional 10–20% of GDV, taking a second charge on the security behind the senior lender under an intercreditor agreement. It is more expensive than senior debt but far cheaper than giving away equity
• Developer equity (third position) - the developer’s own capital contribution, which sits at the bottom of the stack and bears the most risk. Mezzanine finance reduces how much equity the developer needs to put in, improving their overall return on capital

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What commercial mezzanine finance is used for

Commercial mezzanine finance is most commonly used in the following scenarios across the UK commercial property market:

• Ground-up commercial developments - office blocks, warehouse and logistics schemes, retail parks, and mixed-use developments where the total project cost exceeds what senior debt alone can cover
• Commercial property acquisitions - where the purchase price requires more leverage than senior debt can provide alone, and the developer wants to preserve cash equity for other projects
• Refurbishment and conversion projects - where a commercial property requires significant capital expenditure and the combined cost of purchase and works exceeds senior lender appetite
• Bridging equity shortfalls - where a developer is committed to a site but has temporarily limited liquidity, mezzanine finance allows the project to proceed without waiting for equity to be released from another transaction

Commercial mezzanine finance rates and terms in the UK

Commercial mezzanine finance is priced to reflect its position in the capital stack - higher risk than senior debt, lower return than pure equity. Typical terms in the UK market include:

• Interest rates typically range from 12% to 20% per annum depending on the project, LTV, and lender
• Loan terms typically match the senior debt term - ranging from 12 to 36 months for development projects
• Mezzanine lenders typically fund between 65% and 80% of GDV in total combined with the senior debt
• Interest is often rolled up and repaid at exit alongside the capital, preserving developer cash flow during the build

Money Pilot compares specialist commercial mezzanine finance lenders across the full UK market - alongside commercial property finance and development finance - at zero broker fees. FCA regulated (FRN: 968705).

Commercial mezzanine finance - how the structure works in practice

The mechanics of a commercial mezzanine facility depend on four key elements. Each is assessed individually by the lender and influences the rate, leverage, and terms available.

Commercial mezzanine - wider than the development stack

Most mezzanine content stops at residential development. Commercial mezzanine runs wider: commercial and mixed-use schemes, income-asset acquisitions with a value story, and corporate transactions - each with its own funder set and pricing logic.

The three commercial mezz plays - and what each is underwritten on

Each play has funders who specialize in it and funders who will never touch it. Mapping your transaction to the right pool - and structuring coupon versus profit-share to fit your returns - is the work. For residential development stacks specifically, our mezzanine finance page covers the senior-mezz mechanics in depth.

Go deeper

The stack fundamentals live in mezzanine finance for property developers UK; for buyout structures see management buyout process UK.