The enormously undercapitalised real estate business used to be almost entirely financed by borrowed capital. In response to regulatory requirements and the financial crises, credit institutions have become much more cautious when granting project development loans. Even for interesting projects in attractive locations with an appropriate level of advance sales, first-rank lenders often only provide up to 70% debt capital.
Gaining prompt access to 20–30% equity capital is extremely difficult, especially for medium-sized or local initiators, even for attractive projects. Experienced mezzanine borrowers generally have more interesting projects in their pipeline than they are able to realise with their own financial resources.
By sourcing the missing capital, the developer is able to accomplish more projects.
12 – 36 month
20 – 30 %