Mezzanine debt fills the gap between senior debt LTV (typically 60-65%) and common equity in the NYC commercial real estate capital stack. For value-add multifamily, transitional bridge takeouts, and ground-up development, mezz is the workhorse intermediate-layer capital that brings the stack to 80-85% LTC without overlevering the senior.
Mezzanine Loan Structure
Mezzanine debt is structured as a loan secured by a pledge of the equity interests in the property-owning LLC — not by a mortgage on the property itself. This means the mezz lender doesn't have a first-mortgage foreclosure path; they have an equity foreclosure path under the UCC, which is faster but recovers the equity, not the property. Senior lenders allow mezz under intercreditor agreements that govern default rights and standstill periods.
Pricing and Terms
NYC mezzanine debt currently prices at SOFR + 800-1200 bps, with current pay rates of 11-15% (some accrual / PIK options for cash-constrained deals). Terms typically run 3-5 years with extension options matched to the senior. Mezz lenders take warrants or equity participation on heavily-leveraged or higher-risk deals. The all-in IRR target for institutional mezz funds is 12-15%.
Intercreditor Mechanics
The senior-mezz intercreditor agreement governs default scenarios, cure rights, standstills, and assignment rights. Senior lenders typically allow mezz with restrictions: cure rights for mezz on senior defaults, standstill periods before mezz foreclosure, and pre-approval for senior loan modifications. The negotiation is dense — engage mezz-experienced counsel.
Mezz vs Preferred Equity
Mezzanine is debt for tax (interest is deductible by the borrower); preferred equity is equity (distributions are after-tax). For sponsors, mezz is often cheaper post-tax. For LP investors in the property-owning LLC, the choice affects accounting (mezz reduces NOI to the equity; pref doesn't), tax credit eligibility (LIHTC has restrictions on mezz layered above pref), and exit mechanics. NYC sponsors evaluate both per deal.
- Negotiate the intercreditor terms carefully — they govern downside outcomes that matter when stress hits.
- For transitional bridge takeouts, model the agency or CMBS refinance proceeds at year 3 to confirm the mezz is taken out.
- Mezz pricing widens in stressed markets — lock the rate when capital is plentiful.
- Skyline introduces sponsors to active mezz funds matched to deal size and type.
Robert Khodadadian and Skyline Properties broker NYC commercial real estate transactions where mezzanine debt is a critical execution variable. The firm has closed $976M+ in NYC commercial transactions and maintains relationships with active mezz funds. Email info@skylineprp.com for confidential mezz introductions.