Mezzanine Finance for Australian Property Developers: A Plain-English Guide

The Capital Stack — Where Mezzanine Sits

To understand mezzanine finance, you need to understand the capital stack — the layers of funding in a development project ordered by risk and return.

Starting from the lowest risk at the bottom:

• Senior debt (first mortgage) — the bank or non-bank lender who holds first priority. Lowest return, first repaid, least risk. Typically covers 60–70% of project costs.
• Mezzanine finance (second mortgage) — sits directly above senior debt. Higher return (14–22% p.a.), second priority on repayment, secured by a registered second mortgage. Typically covers 10–20% of project costs.
• Developer equity — the developer's own cash, or equity from a joint venture partner. Highest risk, highest return. Typically 15–25% of project costs.

Mezzanine finance allows the developer to stretch the total leverage to 85–90% of project costs, reducing the equity requirement and allowing capital to be deployed across more projects simultaneously.

A Worked Example

Consider a residential development with the following metrics:

Without mezzanine, the developer needs $3.1M in equity. With mezzanine covering $2.5M of the gap:

How is Mezzanine Finance Structured?

Mezzanine finance is structured as a second registered mortgage over the development site. Key features:

• Interest is typically capitalised — no cash interest payments during construction. The total interest bill is repaid when the project settles.
• The mezzanine lender requires an inter-creditor deed with the senior lender — a legal agreement governing the rights of each lender. Evcorp manages this negotiation.
• Loan term is aligned with the construction programme — typically 12–24 months.
• The mezzanine lender may require personal guarantees from directors, cross-collateralised security, or profit participation in some structures.

What Does Mezzanine Finance Cost in Australia?

Mezzanine finance in Australia in 2026 prices between 14% and 22% per annum, depending on:

• LVR and the total leverage of the project
• Project risk profile — location, demand, presale coverage
• Developer track record and net tangible assets
• Loan size — larger facilities attract better pricing
• Senior lender — some senior lenders are more mezzanine-friendly than others

All interest is capitalised, meaning there is no cash drain on the development budget during construction. Evcorp obtains competing pricing from multiple mezzanine lenders for every mandate — pricing varies significantly across providers and negotiation makes a material difference to the cost.

Is Mezzanine Finance Right for My Project?

Mezzanine finance makes commercial sense when:

• The development margin (profit as a percentage of TDC) exceeds the mezzanine interest cost by a sufficient buffer
• The preserved equity can generate a higher return in another project than the mezzanine interest rate
• The project is viable without mezzanine but proceeds faster or with a lower equity hurdle with it

It does not make sense when:

• Development margins are tight and the mezzanine cost materially erodes profitability
• The project has high execution risk — cost overruns or sales risk would squeeze the mezzanine repayment

Frequently Asked Questions

What is mezzanine finance in property development?

Mezzanine finance is a second-ranking loan secured by a second mortgage behind the senior lender. It fills the gap between the senior loan (typically 65-70% of project cost) and the developer's equity, allowing total leverage of up to 85-90% of total development cost. Mezzanine interest rates in Australia typically range from 14% to 22% per annum, with interest almost always capitalised during the construction period. Evcorp Commercial arranges mezzanine finance from $2M to $50M per tranche.

When should a developer use mezzanine finance?

Mezzanine finance is appropriate when: (1) the developer needs more leverage than senior lenders will provide but wants to preserve as much project equity upside as possible; (2) the project economics support the higher cost of mezzanine capital while still generating an acceptable return on equity; (3) the senior lender permits a second mortgage and the inter-creditor process is manageable; (4) the developer has exhausted personal equity and needs additional funding to proceed. Evcorp evaluates whether mezzanine or preferred equity is more suitable for each project.

How much does mezzanine finance cost in Australia?

Australian mezzanine finance typically costs 14-22% per annum, depending on LVR, project risk, location, developer experience, and market conditions. In addition to the interest rate, mezzanine lenders may charge establishment fees (1-3% of facility limit), legal fees, and exit fees. The blended all-in cost is higher than senior debt but lower than the return the developer would sacrifice by diluting equity. Evcorp obtains competitive mezzanine pricing by running multi-lender processes for every mandate.