Mezzanine Debt
Mezzanine debt sits between senior mortgage debt and equity in the capital stack. It's secured not by the property itself but by a pledge of the ownership entity's equity interests — a UCC lien — and typically carries a low-to-mid-teens interest rate to compensate for its subordinate position and faster, but riskier, remedy on default.
Because mezz debt is secured by equity rather than real estate, a mezzanine lender forecloses under UCC Article 9, a process that can take weeks rather than the months or years a mortgage foreclosure requires. An intercreditor agreement between the senior lender and mezz lender governs cure rights and standstill periods.
Layering mezz debt raises overall leverage beyond what a senior lender alone would allow, but each additional layer adds to the deal's blended cost of capital and introduces another party whose consent is typically needed to modify, refinance, restructure, or sell the underlying deal.
A senior loan capped at 65% LTV plus a mezz tranche can push combined leverage to 80% or more, at a materially higher blended rate.