Separate cash payments from accrual
A portion of the return may be paid currently while another portion accrues. Accrued amounts can increase the balance due at repayment.
Check the required return
Minimum interest, exit fees, participation rights and prepayment provisions can change the economics. Model the cost at the expected exit date and at earlier or later repayment dates.
Consider the combined structure
Review senior lender approval, intercreditor terms and the project’s ability to support both obligations. Obtain actual proposals for the specific transaction.
Compare lender term sheets · Official interest-rate benchmarks
Separate cash interest from the growing payoff
A mezzanine proposal may require interest to be paid currently, accrued to the balance or split between the two. Show each component separately. Accrued interest reduces the immediate cash requirement but increases the amount that must be repaid, according to the proposed terms.
Include origination and exit fees, minimum-interest requirements, legal work and extension costs. Review the combined senior and mezzanine debt service alongside property cash flow rather than evaluating the additional loan on its own.
Compare structures through the same exit
Use the same sale or refinance date and the same property assumptions for each proposal. Calculate the total repayment obligation and any cash the borrower must contribute. A longer hold can change both accrued interest and the cost of extension.
Before pursuing a proposal, confirm the senior lender’s consent requirements and the expected intercreditor process. A price indication is only useful if the structure can be permitted, funded and repaid within the property’s business plan.