The Private Lending Boom, and What It Means for You

Mezzanine Finance, Mezzanine Debt – or ‘Mezz Debt’ for brevity’s sake – is a term on the rise in the construction and development world. But it’s a term that a lot of us are unfamiliar with. So, let’s talk about it.

What exactly is Mezz Debt? And how can it be a game-changer for your next construction project?

The easiest way to think about Mezz Debt in relation to construction loans is as a ‘Capital Stack’, a term commonly used to describe the various levels of capital that join forces to fund a project. Personally, the idea of a Capital Stack makes me think of a juicy burger, so here goes nothing – my construction financing hamburger analogy, The Capital Stack.

Senior Debt

First off, we have our burger bun – the Senior Debt. That’s the most substantial part of the Capital Stack, and it makes up much of the Loan to Value ratio of a project. If you’re securing this Senior Debt from a private lender, then it usually sits at between 67 and 75 per cent of the Total Development cost, according to HoldenCAPITAL Director, Dan Holden. The Senior Debt, the construction loan, is our bun, holding the Capital Stack burger together.

What we have left in our Capital Stack are the patty and the toppings – this is the outstanding capital required to get the project off the ground. The Senior Debt provider, or the primary lender, won’t provide all the ingredients for the Capital Stack. They need to see that the borrower has enough ‘skin in the game’ to make the project viable. It doesn’t matter what the projected value of a construction project is, or how delicious that burger sounds on the menu, the Senior Debt provider just won’t bite if the borrower’s risk capital isn’t there.private lenders Sydney


Without our patty – be it Wagyu, fried chicken, or lentils masquerading as beef – all we really have is two soggy pieces of bread. And nobody wants that. So, what does the borrower do if they don’t have enough equity for the capital risk? What if there isn’t enough up-front cash for the deposit? Let’s put our Capital Stack into the perspective of a real-world example and see.

Mezzanine Debt

Chris, one of Archer Private’s borrowers, was buying land in Adelaide for $1million, with an estimated $1.6 million value after subdivision. To undergo the project, Chris needed a loan to settle the purchase, and our private lender provided a loan of $700k. The Senior Debt was sorted at a 70% loan to value ratio (LVR).

But, Chris had already spent $200