Mezzanine finance for property projects: when does it pay off?
Lucrative projects in Germany often fail not on the senior loan, but on the equity gap above it. Mezzanine capital closes exactly that gap and is in part counted by banks as economic equity. we explain the component clearly, structure your overall financing — and tie the subordinated part in via licensed partners.
What is mezzanine finance needed for in a property project?
Mezzanine capital fills the gap between the senior loan and the equity in a property project. Banks and debt funds fund German development projects at an average of 66.3 percent of total costs, so roughly a third has to come from own funds or from a subordinated tranche. That is where mezzanine sits: ranked behind the bank.
When is the extra leverage from mezzanine finance worth its cost?
Mezzanine finance for property projects pays off when the additional leverage creates more value than it costs.
Where does mezzanine capital sit in the capital structure? Subordinated capital between the first-ranking senior loan and true equity. Because it is clearly subordinated — participating loans, subordinated loans, silent partnerships, profit-participation rights — banks count it in part as economic equity. It carries more risk than the bank loan and therefore costs more; its value is the leverage that makes a project possible when your own equity is not enough.
Who arranges this?
Perini Finance & Property — licensed under §34c GewO for commercial property loans, 650+ banks & capital providers, we know the houses whose lending rules cover the senior loan side of your project, brokered by Perini. Mezzanine and equity-like components are asset investments requiring §34f GewO or KWG authorisation — these are not brokered by Perini but tied in via appropriately licensed partners, so you get the complete structure coordinated from a single source. German property as an investment.
When does mezzanine pay off? When the additional leverage creates more value than it costs: a project becomes possible at all, an opportunity is secured, tied-up equity is freed for a further project. It does not pay off when it merely papers over a shaky calculation.
How must mezzanine be structured for a bank to count it as equity?
Mezzanine sits in the capital structure between the first-ranking senior loan and true equity. It is subordinated in its security, so it carries more risk than the bank — and therefore costs more. Its value lies in the leverage: a small subordinated component can make a project possible for which your own equity would otherwise not be enough.
The structuring is decisive. For a bank to recognise the component as economic equity, it must be clearly subordinated. In practice these are instruments such as participating loans, subordinated loans, typical or atypical silent partnerships, or profit-participation rights.
Who may broker which component — and our clear line
Precision is mandatory here, because the components are regulated differently:
Senior loan / bridge — Character: first-ranking loan; Who brokers: Perini, under §34c GewO. Subordinated / participating loan — Character: asset investment, subordinated; Who brokers: licensed partners (§34f GewO). Silent partnership / profit-participation right — Character: asset investment; Who brokers: licensed partners (§34f GewO). Equity / joint venture — Character: entrepreneurial participation; Who brokers: licensed partners.
Our line, with no grey area: the senior loan side we broker ourselves under §34c GewO. Mezzanine and equity-like components are asset investments and therefore require authorisation under §34f GewO or the KWG — these we do not broker ourselves. we structure your overall financing and tie the subordinated part in via appropriately licensed partners. So you get the complete structure coordinated from a single source, cleanly within the bounds of the authorisations.
In practice: what mezzanine makes possible — and when it is the wrong answer
Mezzanine is expensive. It pays off when the additional leverage creates more value than it costs: a project becomes possible at all, an opportunity can be secured, tied-up equity is freed for a further project. we work through the numbers with you honestly — and say so too when the subordinated component is the wrong answer.
Frequently asked questions
Do you broker mezzanine capital yourself?
No. Mezzanine and subordinated components are asset investments and require authorisation under §34f GewO or the KWG. we do not hold this authorisation and do not broker such components ourselves. we structure the overall financing and tie the subordinated part in via licensed partners; the senior loan side we broker ourselves under §34c GewO.
Why does a bank count mezzanine as equity?
Because a clearly subordinated component is serviced only after the bank in the event of a loss. It thus cushions the bank’s risk and acts economically like equity — provided the subordination is cleanly agreed.
How much more expensive is mezzanine than a bank loan?
Considerably, because the lender carries a higher risk. The exact terms depend on the project, security and track record. Mezzanine makes sense only when the leverage creates more value than it costs — we work through the numbers with you.
Can you still organise the complete structure for me?
Yes — that is the point. we coordinate the overall picture of senior loan and subordinated component, broker the loan side ourselves and tie the mezzanine part in via licensed partners. You have one contact instead of three.
Let’s talk about your capital structure
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Editorially responsible: Olga Nikushkina — owner, §34i GewO (German mortgage brokerage), adviser register D-W-132-ZUCB-95. Specialised in German property financing with an international dimension: non-residents, foreign-currency income, cross-border workers, expats. Siegfried Perini is entered in the German intermediary register under this licence as a person directly involved in brokerage and advice (§ 11a GewO), active in real estate since 1992. Not legal or tax advice.