Fulham
Development Finance
Construction site in Fulham - mezzanine development finance
Second Charge Development Lending

Mezzanine Finance in Fulham

Increase your leverage to 90% of total project costs with mezzanine finance layered on top of senior debt. Reduce your equity requirement and maximise returns on Fulham development projects.

Up to 90%
Combined LTC
From 1.0% pm
Mezzanine Rates
As low as 10%
Equity Required
100+
Lender Panel
Understanding Mezzanine Finance

What Is Mezzanine Finance?

Mezzanine finance is a form of subordinated debt that sits between the senior loan (first charge) and the developer's own equity in a property development's capital structure. It is secured by a second charge on the development site and is used to increase the total amount of borrowing available beyond what a senior lender will provide alone.

In a typical Fulham development project, a senior lender might offer 60-70% of total development costs. Without mezzanine finance, the developer must fund the remaining 30-40% from their own resources. By introducing a mezzanine lender, the combined borrowing can reach 85-90% of total costs, meaning the developer only needs to contribute 10-15% as equity.

This additional leverage is particularly valuable in the Fulham property market, where land values and build costs are high, and even experienced developers may find their equity stretched across multiple projects. Mezzanine finance allows developers to take on larger projects or run multiple schemes simultaneously without tying up excessive amounts of their own capital.

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The Capital Stack Explained

Understanding how mezzanine finance fits within the overall funding structure of a Fulham development project.

Developer Equity
10-15%
Highest Risk
Mezzanine Finance (Second Charge)
15-25%
Medium Risk
Senior Debt (First Charge)
60-70%
Lowest Risk
Combined Loan-to-Cost
Up to 90% LTC
Senior 65% + Mezzanine 25% = 90% total leverage

How the Layers Work Together

The capital stack represents how a development project is funded from bottom to top. The senior lender takes the safest position with a first charge, lending against the most secure portion of the project value. The mezzanine lender sits above, accepting more risk for higher returns. The developer's own equity sits at the top, bearing the most risk but also capturing the majority of the profit.

Example: Fulham Residential Scheme

Total Development Cost£2,000,000
Senior Debt (65% LTC)£1,300,000
Mezzanine (25% LTC)£500,000
Developer Equity (10%)£200,000

In this example, mezzanine finance reduces the developer's equity requirement from £700,000 (35%) to just £200,000 (10%), freeing up £500,000 that can be deployed into additional projects or retained as working capital.

Mezzanine Finance vs Stretched Senior

Two approaches to achieving higher leverage on your Fulham development. Understanding the differences helps you choose the right structure.

Mezzanine Finance

Two lenders, two charges

  • Combined LTC up to 90%
  • Two separate lenders involved
  • Intercreditor agreement required
  • Wider range of senior lender options
  • Mezzanine rates: 1.0-1.75% pm
  • More complex legal structure
  • Greater flexibility in lender pairing
  • Second charge security for mezzanine

Best for:

Maximising leverage above 85% LTC, developers with multiple lender relationships, and projects where specific senior terms are preferred.

Stretched Senior

One lender, one charge

  • LTC up to 80-85%
  • Single lender relationship
  • No intercreditor agreement needed
  • Simpler legal process
  • Blended rate across full facility
  • Faster to arrange
  • Limited lender availability
  • First charge security only

Best for:

Developers seeking simplicity, projects needing up to 85% LTC, and situations where speed of execution is the primary concern.

Legal documents - intercreditor agreement for mezzanine finance
Legal Framework

The Intercreditor Agreement

The intercreditor agreement (ICA) is the cornerstone legal document in any mezzanine finance arrangement. It establishes the rules of engagement between the senior lender and the mezzanine lender, setting out how each party's rights and obligations interact throughout the life of the development.

Key provisions within the ICA include payment waterfalls (the order in which parties are repaid), standstill periods (during which the mezzanine lender cannot enforce its security), cure rights (the mezzanine lender's ability to remedy defaults), and the circumstances under which each lender can take enforcement action.

Negotiating the ICA can be one of the more time-consuming aspects of arranging mezzanine finance. At Fulham Development Finance, we work with lender pairings that have pre-agreed intercreditor frameworks, significantly reducing the legal costs and timeline involved.

Payment priority and waterfall structure
Standstill periods and cure rights
Enforcement triggers and procedures
Information sharing obligations
Consent requirements for material changes

When to Use Mezzanine Finance

Mezzanine finance is a strategic tool that makes sense in specific development scenarios. Here are the most common situations where Fulham developers benefit from mezzanine funding.

Limited Available Equity

When you have a strong project but limited cash reserves, mezzanine finance allows you to proceed with as little as 10% equity contribution instead of the typical 30%.

Multiple Concurrent Projects

Spreading your equity across several developments simultaneously, using mezzanine finance to maximise leverage on each scheme and accelerate your portfolio growth.

Larger Site Acquisitions

When a prime Fulham development opportunity arises that requires more capital than your available equity can support at standard LTC ratios.

Speed of Execution

When you need to move quickly to secure a site and cannot raise additional equity in time, mezzanine finance can be arranged alongside the senior debt within the same timeframe.

Typical Rates and Structures

Mezzanine finance terms reflect the subordinated risk position. Here is what to expect when structuring mezzanine funding for a Fulham development.

Interest Rates

Monthly Rate1.0% - 1.75%
Annualised Rate12% - 21%
Interest TypeRolled up / Retained
Default RateTypically +3-5% pa

Fee Structure

Arrangement Fee1.5% - 2.5%
Exit Fee0% - 1.5%
Legal CostsBorrower pays both sides
Monitoring FeeShared with senior QS

Typical Terms

Mezzanine LTC15% - 25% tranche
Combined LTCUp to 90%
Term12 - 24 months
Min Facility£150,000

Important Note on Costs

Mezzanine finance increases your total borrowing costs. On a 12-month project, the mezzanine element might add 12-18% to the cost of that tranche of funding. This must be factored into your development appraisal alongside the senior debt costs. The key question is whether the additional profit generated by deploying your freed-up equity elsewhere exceeds the cost of the mezzanine facility.

Mezzanine Finance FAQs

Common questions about mezzanine finance for Fulham property developments.

Mezzanine finance is a form of secondary lending that sits between the senior debt (first charge) and the developer's own equity in the capital stack. It is secured via a second charge on the property and is used to increase the total leverage available to a developer, often taking the combined loan-to-cost ratio from 65-70% up to 85-90%. Mezzanine lenders accept a higher risk position than senior lenders and therefore charge higher interest rates to compensate.
Mezzanine finance typically bridges the gap between the senior debt (usually 60-70% LTC) and 85-90% of total project costs. For a Fulham development with total costs of £2 million, the senior lender might provide £1.4 million (70% LTC) and the mezzanine lender could provide an additional £400,000, taking total borrowing to £1.8 million (90% LTC). This means the developer only needs to contribute £200,000 of their own equity, rather than £600,000 without mezzanine.
Mezzanine finance rates for Fulham development projects typically range from 1.0% to 1.75% per month, depending on the overall risk profile, the combined LTC ratio, and the developer's track record. Arrangement fees are usually 1.5-2.5% of the mezzanine facility. While these rates are higher than senior debt (0.65-1.0% pm), the cost is justified by the significantly reduced equity requirement and the ability to undertake more or larger projects simultaneously.
Yes. An intercreditor agreement (ICA) must be in place between the senior lender and the mezzanine lender before the facility can proceed. Not all senior lenders permit second-charge mezzanine finance. Our role is to ensure both the senior and mezzanine facilities are sourced from lenders who are comfortable working together, with a pre-agreed intercreditor framework that protects all parties. We work with numerous lender pairings that have established intercreditor relationships.
An intercreditor agreement (ICA) is a legal document that governs the relationship between the senior lender (first charge) and the mezzanine lender (second charge). It sets out the priority of payments, the circumstances under which each lender can enforce their security, standstill periods, and cure rights. The ICA ensures that if the project encounters difficulties, there is a clear, pre-agreed framework for how the situation will be managed. Negotiating the ICA is one of the most critical aspects of structuring a mezzanine-backed development finance deal.
Mezzanine finance is generally more accessible to developers with a proven track record, as the higher leverage increases overall project risk. However, first-time developers with strong professional teams, robust project appraisals, and viable Fulham schemes can access mezzanine finance, particularly if the senior lender is supportive. We have structured mezzanine facilities for less experienced developers by ensuring the overall deal profile is strong and the exit strategy is clear.
A stretched senior loan provides higher leverage (up to 80-85% LTC) from a single lender on a first charge, whereas mezzanine finance involves two separate lenders with a first and second charge respectively. Stretched senior is simpler to arrange as there is no intercreditor agreement required, but it is not available from all lenders and may come with more restrictive terms. Mezzanine finance can achieve higher combined leverage (up to 90% LTC) and offers greater flexibility in lender selection.
If a development project defaults, the senior lender (first charge) has priority in recovering their funds from the sale of the asset. The mezzanine lender (second charge) is repaid only after the senior debt has been fully satisfied. This subordinated position is why mezzanine lenders charge higher rates. The intercreditor agreement typically includes standstill provisions giving the mezzanine lender the right to cure any default or purchase the senior debt before enforcement action is taken.

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