Should this deal use mezzanine, or hard equity?

How this model works.

In plain terms: this tool builds two versions of the same deal, one funded with an equity investor and one with a mezzanine loan, and runs each one thousands of times under random ups and downs, to see which one leaves the developer with more money at exit, and how often.

Senior debt pays down on a fixed schedule. Mezzanine interest piles onto the loan balance instead of being paid in cash; that is what "PIK" means below. EBITDA (the project's cash profit) moves up and down randomly each year around its expected growth rate. The value of the project at exit is calculated properly, as a discounted cash flow, not a rough multiple (see Valuation below). Both financing options are tested against the exact same random ups and downs, so the comparison is fair.

One assumption worth knowing: in this model, the hard-equity investor's payout is capped: they get their target return and nothing more, no matter how well the project does, and the developer keeps every dollar above that. That's checked directly in the numbers, not assumed. A real equity investor might instead own a straight percentage of the company and share in the upside too, without a cap. If that's closer to how your actual deal would work, this model is understating what hard equity would really cost you.

The base case, year by year.

One steady path with no randomness applied: the plain year-by-year numbers behind everything else on this page.

Without Mezz vs. With Mezz, side by side.

How the same Capex gets funded, two ways.

The bar that shrinks is the one the developer no longer has to sell on day one.

Debt service coverage: the check the 75% ceiling does not run

Red = below the 1.20x minimum-acceptable threshold used here.

What the mezzanine balance grows into

Debt balances over time. Senior amortises on schedule in both cases; the mezzanine balance (dashed) grows via PIK accrual, the cost of the developer's patience, paid at exit, not in cash along the way.

Enterprise value at exit: a discounted cash flow, not a bare multiple.

Base case (with mezz), no randomness: every year's cash flow after exit, discounted back to today's dollars, plus a final sale value, then subtract what's still owed on senior and mezzanine debt to get what's left for equity.

The capital stack at exit: who gets paid

The chart above shows where the money came from. This shows what it turns into. Senior and mezzanine debt get paid back first, in full; whatever is left splits between the investor's guaranteed return and whatever the developer keeps.

Caveat: this bar chart, like the Key Insight box, treats both structures as fully liquidating at exit: senior and mezzanine repaid, equity value split, and the counterparties gone. That's not the same claim for both structures if the asset is instead refinanced or held longer. The "Investor" segment above is a permanent ownership stake, not a one-time payout that disappears once drawn on this chart. If the project isn't actually sold at this exit year, that investor keeps their ownership and keeps sharing in everything the project earns from here forward, indefinitely. The "Mezz" segment, once repaid, is gone: there is no ongoing mezzanine claim to draw on this chart again next year. This asymmetry is quantified below.

Beyond the modelled exit

What happens if the developer holds or refinances instead of selling at the modelled exit? Mezzanine is gone for good once it's repaid. The hard-equity investor is not; they keep the same ownership share of everything that happens afterward.

The distribution of developer value at exit.

3,000 simulated outcomes per structure, tested against the exact same conditions. The bar at $0 is how often the deal just does not clear the investor's required return (a real outcome, not a rounding error), so it is shown separately rather than squashing the rest of the chart flat. The number above it is the exact count.

How close is this run to flipping?

The line below is exact maths, not a simulation: mezzanine's dollar edge over hard equity depends only on the PIK rate, nothing else about the project. So there's no randomness in where this line crosses zero.

Generate the full PDF.

The report runs the same 3,000 paths as this view, from the same seed, and adds the base-case financial statements, the exit valuation bridge, the wrong-way-risk correlation sensitivity and the method notes, typeset for internal circulation..