Mezzanine Capital

Mezzanine capital is financing that ranks below a senior mortgage but ahead of the owner's equity. It is used on larger commercial deals to fill the gap between what the first lender will lend and what the buyer puts in. It is paid from NOI after the senior loan.

Since the mezzanine lender is paid only after the senior lender, it charges a higher rate. Its safety depends on how much NOI is left once the first mortgage is paid. Lenders often measure this with a combined coverage ratio across both loans.

Mezzanine debt is rare on single-family rentals and small multifamily properties, where a second mortgage or seller financing plays a similar role. On any deal, stacking debt raises total payments. NOI has to cover every layer before the owner sees any cash.