Care home mezzanine finance and equity
The top-up layer that sits behind the senior loan to fill the equity gap on a care home development or acquisition, lifting total leverage when the senior facility alone does not reach.
What mezzanine and equity finance is
Mezzanine and equity finance fills the gap between the senior loan and the cash you can commit on a care home development or acquisition. The senior lender funds the bulk of the cost at the lowest rate but stops short of the total, and mezzanine, or an equity partner, fills the shortfall so the deal can proceed without you finding all the remaining cash. This is finance to build or buy a care home as a business, not help with paying care fees.
Mezzanine is a junior loan that ranks behind the senior facility. Because it is repaid after the senior lender and carries more risk, it is priced higher, but it lets you do a deal that the senior loan alone would not reach. Equity goes a step further: an equity partner puts in capital in exchange for a share of the project profit rather than a fixed return, which suits schemes where the upside is strong and the borrower would rather share profit than carry expensive junior debt.
On a development, the senior facility might fund 60 to 70 percent of cost, leaving a 30 to 40 percent gap; a mezzanine layer behind it can lift total leverage toward 80 to 90 percent of cost on a strong scheme, reducing the cash the developer must commit. On an acquisition, mezzanine can bridge the difference between the senior mortgage and the purchase price.
We arrange mezzanine and equity alongside the senior facility, structuring the whole stack so the layers sit together cleanly, with lenders such as OakNorth, Assetz Capital and Puma Property Finance on the senior side and specialist mezzanine and equity providers behind them.
- Fills the gap between the senior loan and the cash you can commit
- Mezzanine ranks behind the senior facility and is priced for the risk
- Equity shares project profit instead of charging a fixed return
- Can lift total leverage toward 80 to 90 percent of cost
- Used on developments and on acquisitions where the senior falls short
- Arranged alongside senior lenders as a single, clean capital stack
Indicative terms
- PositionJunior to the senior facility, behind the first charge
- Total leverageLifts the stack toward 80 to 90 percent of cost
- Mezzanine rateHigher than senior, reflecting the junior risk
- Equity returnA share of project profit rather than a fixed rate
- SecuritySecond charge or intercreditor with the senior lender
- TermMatched to the development or hold period
- UseDevelopment equity gap, or acquisition top-up
- RepaymentOn exit, after the senior facility is repaid
Indicative only. Terms vary by lender, scheme and borrower and are not an offer of finance.
Who it suits
- Developers short of the equity the senior lender requires on a build
- Operators acquiring a home where the senior mortgage falls short of the price
- Strong schemes that can carry junior debt against a healthy margin
- Borrowers who prefer to share profit with an equity partner than commit cash
- Groups stretching leverage across several projects at once
Discuss mezzanine and equity
A view on fundability within one working day.
How the layers fit together
Size the senior
We first establish how far the senior facility reaches against cost and value, which sets the size of the gap to fill.
Structure the gap
We work out whether mezzanine, equity or a blend fits best, balancing the cost of junior debt against sharing the project profit.
Agree the intercreditor
The senior and junior providers agree how they rank and are repaid, documented in an intercreditor arrangement so the stack holds together.
Draw and exit
The layers draw alongside the senior facility through the project, and the junior layer is repaid on exit after the senior loan.
Who can use mezzanine and equity
Mezzanine and equity suit strong schemes that can carry the extra cost, so the project economics have to work hard. A mezzanine provider lends behind the senior lender, so they need a healthy development margin or a well-covered acquisition that can absorb a higher cost of capital and still leave a return. They assess the same fundamentals as the senior lender, the build cost, the programme, the contractor, the operator and the local market on a development, or the trading and covenant on an acquisition, and then look at the cushion that protects their junior position. An equity partner goes further, taking a view on the upside, so they favour schemes with a strong margin where sharing profit makes sense for both sides. A thin-margin scheme that cannot afford junior debt is not a fit. We test whether the deal genuinely supports the extra layer before arranging it, because over-leveraging a weak scheme helps no one.
How much extra leverage you can add
Mezzanine and equity work on top of the senior facility, so the question is how much further the stack can stretch. With a senior loan at 60 to 70 percent of cost on a development, a mezzanine layer can lift total leverage toward 80 to 90 percent of cost on a strong scheme, cutting the developer's cash requirement substantially. The ceiling is set by the project margin and the senior lender's appetite for junior debt behind them: there has to be enough headroom in the finished value to repay both the senior and the junior layers with a cushion, or neither provider will proceed. On an acquisition, mezzanine bridges the gap between the senior mortgage, sized on going-concern value, and the purchase price, again only where the trading comfortably covers the combined debt service. We model the whole stack together, because the senior limit, the junior limit and the margin all interact, and the maximum sensible leverage is the point where the numbers still work on a stressed case.
Rates and costs
Mezzanine is priced higher than senior debt because it ranks behind it and carries more risk, so it costs more per pound borrowed; the trade is that it lets you do a deal the senior loan alone would not reach and keep more of your cash for other projects. Equity is not priced as a rate at all but as a share of the project profit, so it costs nothing if the scheme fails and a meaningful slice of the upside if it succeeds, which suits a high-margin scheme. Expect arrangement fees on the mezzanine layer, legal costs for the intercreditor documentation that governs how senior and junior rank, and the senior lender's own fees on their facility. The right structure is the one that maximises your return on the cash you commit across the whole stack, not the one with the lowest headline rate. We disclose our fee in writing and never claim an exclusive tie to any provider.
Mezzanine, equity or more of your own cash
Mezzanine and equity are alternatives to committing more of your own cash to a deal. Mezzanine is the right choice on a strong scheme where the margin comfortably covers a higher cost of junior debt and you want to keep ownership of the upside; you pay more in finance cost but retain the profit. Equity suits a scheme with a large but less certain upside where you would rather share profit with a partner than carry expensive debt, and where having a partner with capital and confidence in the project adds value. Putting in more of your own cash is the cheapest option if you have it and are happy to concentrate it in one deal, but it ties up capital that could spread across several projects. We model the return on your committed cash under each route, so the structure is chosen on what it does for your equity, not on instinct.
Mezzanine and equity: common questions
How does mezzanine finance work on a care home deal?
Mezzanine is a junior loan that sits behind the senior facility and fills the gap between what the senior lender funds and the total cost. It ranks for repayment after the senior loan, so it carries more risk and a higher cost, but it lets you complete a development or acquisition without committing all the remaining cash yourself.
How much does care home mezzanine finance cost?
Mezzanine is priced higher than senior debt because it ranks behind it and takes more risk. The exact cost depends on the project margin and how much cushion protects the junior position. The trade-off is that the higher cost is offset by needing less of your own cash and keeping the project upside.
What is the difference between mezzanine and equity?
Mezzanine is a junior loan with a fixed cost that ranks behind the senior facility and is repaid on exit. Equity is capital from a partner who takes a share of the project profit rather than a fixed return. Mezzanine keeps you the full upside at a higher finance cost; equity shares the upside but costs nothing if the scheme does not perform.
How much total leverage can mezzanine add?
On a development with a senior loan at 60 to 70 percent of cost, a mezzanine layer can lift total leverage toward 80 to 90 percent of cost on a strong scheme. The ceiling is set by the project margin: there has to be enough headroom in the finished value to repay both layers with a cushion.
What are the cons of mezzanine debt on a care home?
It costs more than senior debt, it adds another layer of documentation through the intercreditor arrangement, and it only works on a scheme with a healthy margin that can carry the extra cost. Over-leveraging a thin-margin scheme with mezzanine increases the risk to the whole stack, which is why we test the economics before arranging it.
Discuss mezzanine and equity
Send us your scheme and we will come back with a view on fundability and likely terms within one working day.