Student accommodation mezzanine finance and JV equity

Lending and investment criteria

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 in the GDV 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 university market, then look at the cushion that protects their junior position. A JV equity partner goes further, taking a view on the upside, so they favour schemes with a strong margin in an undersupplied city where Savills records ratios around three students per bed and forecasts supply growth of 70 percent or more in cities such as Bristol and Glasgow to 2028. A thin-margin scheme that cannot afford junior capital is not a fit. We test whether the scheme genuinely supports the extra layer before arranging it, because over-leveraging a weak scheme helps no one.

How much leverage you can reach with senior plus mezzanine

Mezzanine and equity work on top of the senior facility, so the question is how far the stack can stretch. With a senior loan at 60 to 70 percent of cost on a PBSA development, capped at around 60 to 65 percent of GDV, 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. JV equity can go higher still, in principle funding close to all the cost the developer cannot cover, in exchange for a larger share of the profit. The ceiling is set by the GDV margin and the senior lender's appetite for junior capital behind them: there must be enough headroom in the finished value to repay the senior and the junior layers with a cushion, or no provider will proceed. 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. All bands are illustrative, subject to principal sign-off and not an offer.

Pricing, profit share and security

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 scheme the senior loan alone would not reach and keep more of your cash for other projects. JV equity is not priced as a rate 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. Preferred equity takes a priority return ahead of the developer's profit, sitting between the two. Security is by second charge or intercreditor with the senior lender, and the intercreditor documentation governing how senior and junior rank is a real cost in legal time. The right structure 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 debt, JV equity or more of your own cash

Mezzanine, preferred equity and JV equity are alternatives to committing more of your own cash to a scheme. Mezzanine suits a strong scheme where the GDV 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. JV 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 a partner with capital and conviction adds value. Preferred equity blends the two. Putting in more of your own cash is the cheapest option if you have it and are happy to concentrate it in one scheme, but it ties up capital that could spread across several. 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.