Mezzanine finance is unsecured lending raised by finance companies to fund property development projects.
Mezzanine finance is raised by property developers to finance large scale property developments such as building residential units. Mezzanine finance is used in conjunction with bank loans and the property developer's own equity to fund the development. In the event that the developer goes bankrupt, mezzanine finance investors stand second in line to the banks to receive their dues, hence explaining the higher rates of interest offered.
The risk with mezzanine finance hinges on the credibility of the property developer, property market conditions and the particulars of the contract.
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