Layer mezz behind a bridge when sponsor needs leverage above the senior bridge LTV cap (typically 65% to 75%) and the equity contribution otherwise dilutes IRR below target.
Mezz-behind-bridge math and the intercreditor structure
When the math loses: when projected unlevered IRR is in the 8% to 10% range, mezz at 12% becomes negative-carry against the unlevered yield. The deal still works for cash-on-cash but compresses sponsor IRR below target. Heavy execution risk plus negative-carry mezz is the wrong combination, equity is cheaper than mezz on those deals.
Intercreditor mechanics: the senior bridge and mezz lenders sign an intercreditor agreement governing default cure rights (mezz right to cure senior default, payments during workout), standstill periods (mezz cannot foreclose during senior workout), and equity-pledge enforcement (mezz forecloses on the borrower-LLC interests, not the property). Standard ICA terms vary; competing mezz lenders accept different intercreditor structures, which is itself a negotiation lever.
Sources
- Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) · Board of Governors of the Federal Reserve System · 2026-Q1
- Semiannual Risk Perspective · Office of the Comptroller of the Currency · 2025-12
- Financial Stability Report · Board of Governors of the Federal Reserve System · 2025-11