Mezzanine size is the gap between the senior lender's proceeds and the sponsor's equity check, subject to the senior lender's total-leverage limit and the mezzanine lender's combined debt-yield and DSCR tests. Pieces under $5 million are harder because legal and intercreditor costs do not scale down.
What drives sizing?
Mezz size is set by the gap between the senior's maximum proceeds and the sponsor's target equity check, capped by the senior's allowed maximum total leverage and by mezz lender debt-yield and DSCR tests on the combined stack.
Why does sub-$5 million mezz get harder?
Fixed transaction costs (legal, intercreditor negotiation, closing diligence) do not scale down. A $3 million mezz piece spreads $200,000 to $300,000 of fixed costs over a small notional, pushing the all-in cost toward 18 to 22 percent. Most sponsors at that scale use cheaper, simpler subordinate equity.
Sources
- Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations · Mortgage Bankers Association · 2026-Q1