Mezzanine capital

Together with its investors, KENSINGTON Family Office invests in interesting development projects and properties with a potential return on investment. We rely on strategic partnerships with renowned project developers to support them with equity and exit.

What is mezzanine capital?

Mezzanine (from the Italian word mezzo = half) is basically a mixed form of equity and debt capital. From an economic point of view, mezzanine capital counts as equity.

A special feature of this funding instrument is that investors get higher returns. Another characteristic is its subordination to debt capital, i.e. potential bank loans. As a matter of fact, subordinated loans are only settled after debt capital in the event of an emergency. The liability of mezzanine creditors is the same as that of equity investors. Mezzanine lenders, on the other hand, do not have voting rights and can therefore not intervene at an operational level. However, they do have the right to receive information and thus monitor what is happening.

Mezzanine capital is available to a company or a project for a limited time only and must be repaid with interest and/or a share of the profits.

What is the purpose of mezzanine capital?

Since banks ask for a certain share of equity in order to grant a loan for a real estate project, developer firms require approx. 30% of equity. And this is where mezzanine capital comes in: When the project developer has no or too little equity, the mezzanine lender comes into play.

Mezzanine lenders can be individual investors, groups of investors (potentially in the form of “club deals”), family offices or even funds. Even private banks and insurance companies make use of the high returns of this form of investment.

What is the interest rate?

The interest rate as well as the maturity of mezzanine capital are not fixed and may vary. As a rule, the interest rate is above 10% and can even exceed 20%. Like everything else in the free economy, the parties to a mezzanine capital deal freely negotiate the conditions, which may vary according to project, term, market situation and market conditions, etc. A mix of a fixed interest rate and a share of the profit from the project is also quite common.

Minimising risks.
Optimising returns.