What is the typical interest rate benchmark for mezzanine loans?

Mezzanine loans are a form of financing that is typically used to fill the gap between senior debt and equity in a real estate capital structure. These loans are considered to be higher risk compared to senior debt because they are subordinate to it, which means that in the event of liquidation, mezzanine lenders are repaid only after senior debt holders have been satisfied. Due to this higher level of risk, mezzanine loans command higher interest rates compared to traditional loans.

The interest rate benchmark for mezzanine loans generally falls within the range of 8-12%. This rate reflects both the risk profile associated with mezzanine financing and the demand for capital in the real estate market. Lenders often price mezzanine loans higher than traditional mortgage loans to compensate for the risk they take on by being in a subordinate position. This characteristic makes the specified range of 8-12% the most appropriate benchmark for mezzanine loan interest rates.

Other ranges provided, while they may seem plausible for different types of financing (such as senior loans or simpler, less-risk investments), do not accurately reflect the risk-adjusted pricing typically associated with mezzanine financing. Therefore, the range of 8-12% aligns well with the standard expectations and practices within the mezzanine lending market