How to Use Mezzanine to Scale Without Losing Control

Question

One of the biggest challenges for real estate developers and operators?

Needing growth capital — without giving up equity or control.

That’s where mezzanine financing comes in.

It sits between senior debt and equity, giving you leverage beyond the bank — while keeping your ownership intact.

Here’s how savvy sponsors use it:

1️⃣ Expand faster — Fund new acquisitions or ground-up projects while existing equity is tied up.

2️⃣ Bridge valuation gaps — When senior lenders pull back (say, 60–65% LTC), mezz fills the missing 10–20%.

3️⃣ Avoid dilution — Keep your investor pool tight and your decision-making power intact.

4️⃣ Improve IRR — Leveraging mezz at the right rate can boost returns across your capital stack.

💡 Example:

A multifamily sponsor used a $10M mezz tranche to complete a $45M development — retained 100% equity and hit stabilization 6 months early.

Mezzanine isn’t just “extra debt.”

It’s a strategic growth tool — when used right, it accelerates your pipeline without giving up control.

#MezzanineFinance #RealEstateInvesting #CRECapital #DealStructuring #CapitalStack #BiggerPocketsCommunity

Kim Lisa Taylor · Answer

Are you seeing commercial lenders that will allow Mezzanine debt?

My experience with our hundreds of clients is that ever since Dodd Frank passed, commercial lenders and particularly agency debt (Fannie and Freddie), prohibit subordinate debt. We've seen a few local community banks that have allowed it.

Are you seeing other lenders that allow it? Is it limited to certain applications (i.e., development versus value add, etc.) or asset classes. I'm interested to hear more.