Mezzanine financing is financing that is junior in interest to the mortgage but senior in interest to equity. Mezzanine financing has a similar risk and return profile to preferred equity, however operational mechanics and legal enforcement differ between the two. Mezzanine financing is typically secured by a pledge of the equity interests in the legal entity (usually a limited liability company or partnership) that owns the underlying property. Thus, mezzanine financing is only indirectly secured by the property. Similar to other loans, mezzanine financing typically has a stated fixed or floating interest rate and a specified maturity date and these terms are detailed in mezzanine loan documents. In the event of a breach or default, the mezzanine lender may enforce its pledge of equity in the ownership entity through a UCC sale or foreclosure.
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