What characteristic defines a mezzanine loan?

A mezzanine loan is a type of financing that is typically used for large commercial real estate projects. This form of financing is subordinate to senior debt but still secured by some form of collateral, commonly equity interests in the property. The characteristic that primarily defines a mezzanine loan is its role in capital stacks for larger developments, often allowing developers to access necessary capital to complete substantial projects without having to take on additional first-lien loans that may have stricter requirements or higher costs.

While mezzanine loans can be used across various types of projects, including residential, their predominant association is with larger commercial ventures, where traditional financing options might be insufficient or overly restrictive. This attribute makes them particularly appealing in funding substantial developments where larger capital needs arise, as they help bridge the gap between different layers of financing in a project’s funding structure.