How is mezzanine debt priced?

Mezzanine pricing has 3 components: (1) cash coupon paid monthly (typically 8-12%), (2) PIK accrual that compounds to principal (typically 2-4%), (3) sometimes warrants or kickers at exit (1-3% IRR equivalent). Effective IRR to lender = sum of all three. Real estate mezz typically 12-15% all-in. Recap mezz 14-17%. Construction mezz 15-18%.

What is PIK in mezzanine?

PIK = Payment-In-Kind. The unpaid interest portion accrues to the principal balance and compounds. Worked example: $5M mezz at 11% cash + 3% PIK over 5 years. Cash coupon $550K/yr. PIK accrues from $150K year 1 to ~$170K year 5 (compounding). Term-end balance ~$5.85M (vs. $5M par). Effective IRR ~14% combining cash + PIK.

When do warrants make sense in mezz?

Warrants typically appear in: corporate mezz (LBO + growth equity), real estate mezz on construction or repositioning where equity-like upside justifies, sponsor-friendly structures with longer term/lower cash coupon. Warrants worth ~1-3% IRR equivalent at exit. Real estate stabilized mezz typically NO warrants, pure cash + PIK structure.

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Cash coupon + PIK accrual + term + warrants → all-in effective cost + balloon balance. Real estate, corporate, recap, construction mezz scenarios.

Mezzanine Terms

Mezzanine Principal

Cash Coupon (% paid monthly)

PIK Rate (% accruing to principal)

Term (years)Warrant IRR-Equivalent at Exit (%, 0 if none)

Real estate mezz typical: 10-12% cash + 2-4% PIK + no warrants. Corporate mezz: 9-11% cash + 3-5% PIK + 1-3% warrants. Construction mezz: 11-13% cash + 3-5% PIK + 1-2% warrants.

Pricing Output

Annual Cash Coupon Payment

$550K/yr

Total Cash Paid Over Term

$2.75M

Term-End Balloon Balance (incl. PIK)

$5.80M

PIK accrued: $796K (compounds annually)

Total Cost (Cash + PIK)

$3.55M

Effective All-In Rate (Cash + PIK + Warrant)

14.00%

Vs. senior CRE debt at ~6-7%, mezz premium ~6-9 points

About these figures

Rate, spread, leverage and term levels shown here are indicative. They reflect general conditions across our lender network as of August 1, 2026 and describe what the market has recently supported, not an outcome available to any specific borrower.

Actual pricing, leverage and terms are determined by the lender through underwriting, once full transaction materials have been reviewed. Nothing shown here is a quote, a commitment, an offer of credit or a guarantee.

PeerSense is a commercial lending advisory. We do not lend, we do not fund and we do not set pricing. Every credit decision belongs to the lender.

Market conditions move. Figures may change without notice, and a level that cleared last quarter may not clear today. What these terms mean.

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