Flexible Form of Financing, where the Developer keeps Regular Control
Mezzanine capital is an extremely flexible form of financing. Depending on the investor’s strategy, either passive financing can be provided at an attractive interest rate on the capital, or the investor can actively take over or arrange functions himself. In the first variant, project management remains entirely with the experienced developer. The second variant can be a great advantage for developers, especially in the case of difficult projects or in previously unknown markets, as the investor brings the missing expertise on board and thus strengthens the project not only on the capital level.
Against this background, mezzanine capital is regularly subordinated to the additional capital provided by banks. Due to the higher risk of payment default in the event of the borrower’s insolvency, the interest components in favour of the mezzanine capital provider are significantly higher than those of traditional bank loans. The lower the possible equity position and the marketing potential of the financed property, the higher the risk premiums will be from the mezzanine capital provider’s point of view.