The Capital Stack & Mezzanine Finance
Stop giving away 50% of your development profits to JV partners. Learn how to construct a 'Capital Stack' using senior debt and mezzanine finance to fund 90% of a project's cost while retaining 100% of the equity.
A common trap for growing property developers is the over-reliance on Joint Venture (JV) equity. When a developer finds a £2M GDV project but lacks the £400k deposit required by the senior lender, they typically bring in a JV partner who provides the cash in exchange for 50% of the profits. This is the most expensive money in the world.
Constructing the Capital Stack
Advanced developers do not give away equity; they buy debt. The 'Capital Stack' is the hierarchy of financing used to fund a project. The base layer is the Senior Debt (a development lender providing 65% of the GDV). Above that sits the Mezzanine Finance (a secondary lender who takes a second charge and funds the gap from 65% up to 80% or 85% of GDV). Finally, the top sliver is the developer's actual cash input.
While Mezzanine debt is expensive (often 12-18% per annum), it is vastly cheaper than giving away half your profit. If the project makes £400,000 profit, paying £50,000 in mezzanine interest is a mathematical triumph compared to surrendering £200,000 to an equity partner. Mastering the capital stack is what transitions an amateur builder into a professional developer.