Mezzanine Financing
Senior housing mezzanine & B-note financing
When senior debt and sponsor equity do not fully fund a skilled nursing, assisted living or senior housing transaction, junior capital may close the gap. LMD provides direct mezzanine loans and structures B-note financing on a transaction-specific basis, reviewing the full capital stack and the refinancing plan together.
- Direct mezzanine lending from LMD
- B-note / A-B structures arranged case by case
- Senior lender consent reviewed early
- Any junior debt behind agency or HUD loans requires separate program and lender approval
Fit
When junior capital fits
Acquisition funding gaps
The senior loan and the sponsor's equity cover most, but not all, of the purchase and closing costs.
Recapitalizations
Returning or replacing capital while keeping an existing senior loan in place, where the senior lender allows it.
Business plan execution
Funding operational improvements or capex that the senior loan does not cover.
Bridging to a refinance
Supporting the period before a permanent refinance, when the exit can reasonably repay total debt.
Structures
Mezzanine versus B-note: how they differ
These are different structures, and not all junior debt is a second mortgage. The actual rights of each lender are set by the loan documents and any intercreditor or co-lender agreement.
| Mezzanine loan | B-note (A/B structure) | |
|---|---|---|
| What it is | Generally a separate loan to the owner of the property-owning entity | Typically the subordinate note or interest within a single mortgage loan split into A and B pieces |
| Collateral | Generally secured by a pledge of ownership interests, not the property itself | Shares the mortgage on the property, behind the A-note |
| Priority and control | Governed by the mezzanine documents and an intercreditor agreement with the senior lender | Governed by the co-lender or participation agreement between note holders |
| Borrower's view | Two loans and two sets of documents | Often one loan to the borrower, with the split handled between lenders |
This summary is general. Every transaction is governed by its own documents.
Underwriting
Reviewing the combined debt
We underwrite the senior and junior debt together, looking at:
- Current cash flow versus projections
- Total senior plus junior debt service
- Sponsor equity in the transaction
- Reserves
- Senior loan covenants
- Alignment of senior and junior maturities
- Expected proceeds at exit or refinance
Illustration
Illustrative funding-gap example
Illustrative arithmetic only
- Total project cost
- $20,000,000
- Bank senior loan
- − $14,000,000
- Sponsor equity
- − $3,000,000
- Remaining funding gap
- $3,000,000
This is a hypothetical example, not an actual LMD transaction, quote, offered leverage or commitment. Whether junior capital can fill any part of a gap, and how much, depends on the overall underwriting of the property, sponsor and senior loan.
Documentation
Senior lender consent and documentation
Most senior loans restrict additional debt or transfers of ownership interests. Junior financing therefore usually requires the senior lender's consent and an intercreditor or co-lender agreement. Approval from the senior lender, and from the applicable agency where an agency loan is involved, is reviewed early so that documentation and timing are realistic.
Exit
Refinance and HUD exit considerations
Junior capital should have a clear path to repayment, often a refinance or sale. Where a HUD Section 232 refinance is the proposed takeout, the junior loan is generally expected to be repaid from the refinance or by the sponsor. Any debt that would remain subordinate to a HUD loan requires separate program, lender and HUD review and approval; it should not be assumed to be compatible. See our SNF and assisted living bridge-to-HUD guide and FHA/HUD Section 232 program overview.
Documents
What to send for an initial review
- Property location and number of beds or units
- Senior loan terms, or the senior lender's term sheet
- Total project cost and sources and uses
- Sponsor equity amount and source
- Requested junior proceeds and timing
- T-12 plus recent monthly financials
- Census or occupancy and payer mix
- Business plan and planned exit or refinance
- Operator and sponsor background
FAQ
Mezzanine and B-note questions
Is a mezzanine loan the same as a second mortgage?
No. A mezzanine loan is generally a separate loan secured by ownership interests in the property owner, not by a mortgage on the property. The exact collateral and rights depend on the documents.
Does my senior lender need to approve junior financing?
Usually, yes. Most senior loans limit additional debt and ownership transfers, so consent and an intercreditor or co-lender agreement are typically required.
Can junior debt stay in place after a HUD refinance?
It should not be assumed. Any debt remaining subordinate to a HUD loan requires separate program, lender and HUD review and approval.
How much junior capital can a transaction support?
It depends on overall underwriting, including combined debt service, sponsor equity, reserves and expected exit proceeds. We do not quote leverage before reviewing the deal.
Does LMD offer B-notes directly?
LMD structures B-note financing on a transaction-specific basis. Whether a B-note is available depends on the senior lender and the transaction.
Term Sheets
Download a branded PDF term sheet for any Mezzanine program.
Multifamily / agency resources
For conventional multifamily loans with agency senior debt. Availability and approval of any agency mezzanine product depend on the agency and the senior lender, and this resource does not represent LMD's own agency approval.
Ready for a preliminary review?
Share the property, the request and your timing. Also see our bridge-to-HUD financing guide or FHA/HUD programs.