Think of it as a line, and the line is the same every month and again at a sale.
Rent comes in. Operating expenses get paid, then the senior lender's payment, then the mezz lender's payment, and whatever is left goes to the equity. Senior at 60 means the first mortgage is 60% of the value. Mezz to 78 means the mezz lender put in the slice from 60 to 78. The equity is the last 22 plus whatever the sponsor actually contributed.
At a sale the same order runs. Senior gets paid off in full first, then the mezz, then the equity splits what's left. So if the building is worth less than expected, the equity gets zero before the mezz loses a dollar, and the mezz gets wiped before the senior takes a scratch.
That ordering is why the mezz charges so much more. It's usually two to three times the senior rate, and mezz lenders are generally looking for something in the 10 to 15 percent range. They're paid later in the line, so they want more.
The part your client didn't say is how the mezz is secured. It usually doesn't have a mortgage on the building. It has a pledge of the ownership interests in the company that owns the building, so if things go wrong it can take the company rather than the property. Worth knowing when you hear the shorthand.
