Short answer
Current-pay mezz pays the full coupon monthly from operating cash flow. Accrual mezz lets all or a portion of the interest compound to maturity. Most transitional deals use a hybrid: a current-pay portion (often the SOFR base) and an accrual portion (the spread ), capping monthly debt service while preserving total return.
Why use accrual?
Transitional and lease-up deals do not produce enough cash flow to service a fully current-pay mezz coupon. Accrual relieves the property of monthly burden during the value-creation window and shifts repayment to the refinance or sale event when the basis recovery is realized.
Sources
- Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations · Mortgage Bankers Association · 2026-Q1