Do I need experience for mezzanine development finance?

Mezzanine development finance is a second-charge loan sitting behind the senior lender that takes total funding above the senior ceiling, commonly to 95% or 100% of cost. Mezzanine carries a higher rate and often a profit share, and is used to reduce the developer's equity requirement.

Yes. Stretched senior and mezzanine lenders lend to first-time developers and assess the scheme's profit margin, costings and exit in place of a track record. Criteria are tighter, and pricing is usually higher than for experienced developers.

Development finance works in two stages: an initial advance towards the land or existing building, then staged drawdowns of build costs released against a monitoring surveyor's monthly certificates. Interest is rolled up or retained within the facility, and the loan is repaid when the completed units are sold or refinanced onto term mortgages.

100% development finance is available, for the right scheme, through a joint venture lender that provides the senior facility and the equity together, funding the whole scheme cost in exchange for a share of the profit. The developer's cash at risk can be nil, with the site or opportunity, the planning consent and the delivery forming the developer's contribution.

Development finance lenders fall into five groups: high-street banks, lending at the lowest leverage and cost; challenger banks; specialist development lenders, funding to higher ceilings; mezzanine and joint venture funders, providing capital above senior debt; and private lenders and family offices, funding bespoke or time-critical schemes.