What it means for mezzanine debt to sit in the middle of the capital stack
When a deal is described as senior at 60, mezz to 78, then equity, those are loan-to-value thresholds, and the stack sets two orders: who gets paid each month, and who gets paid on a sale or refinance. Monthly, the senior lender is paid first out of property income. Only once that is satisfied does the mezzanine lender get its interest, at a materially higher rate because it is subordinate. Equity takes whatever is left, which can be nothing in a rough month. On a sale or refinance, the same order applies to principal. Senior debt is retired first, mezzanine next, and only then does equity receive anything. If the price doesn't cover both layers, mezzanine can be wiped out entirely even though it sits above equity, which is the tradeoff for its higher rate.
