Why a mezzanine loan fits industrial
A mezzanine loan is subordinate debt secured by a pledge of the ownership interests in the property-owning entity rather than by a mortgage on the real estate. It sits between the senior mortgage and the common equity in the capital stack.
Industrial mezzanine debt often completes the stack on portfolio acquisitions or single-tenant assets where the senior lender caps leverage. Tenant credit and remaining term carry the analysis.
Industrial market context
Industrial real estate remains one of the most resilient CRE asset classes heading into 2026. Cap rates have stabilized, with Class A, B, and C industrial averaging approximately 5.28%, 6.02%, and 7.38% respectively. Investors anticipate gradual interest rate decreases in the second half of 2026, which could compress cap rates further in core distribution markets.
Leasing activity recovered in late 2025, driven by large-scale logistics occupiers taking buildings over 500,000 square feet. Occupiers are consolidating into larger, more efficient Class A facilities and shifting toward lower-cost interior markets over expensive coastal locations. Build-to-suit development remains active for credit tenants.
Underwriting considerations for industrial
H Equities evaluates industrial deals based on location, tenant quality, lease structure, and logistics demand fundamentals. Our platform is built to move quickly on transitional industrial assets that need bridge capital for acquisitions, lease-up, or repositioning. For a mezzanine loan specifically, the request is evaluated against the asset-level factors below and the structural questions that follow.
- Clear height, column spacing, truck court depth, and dock configuration directly impact tenant demand and achievable rents.
- Proximity to transportation infrastructure -- interstate access, ports, rail, and airports -- is a primary value driver for logistics tenants.
- Evaluate environmental risk carefully; industrial properties carry higher Phase I/II due diligence requirements than other asset classes.
- Tenant credit quality varies widely in industrial; understand the difference between investment-grade logistics tenants and small manufacturing operators.
- New supply pipelines in major distribution markets can impact occupancy and rent growth projections -- model absorption carefully.
- The senior loan terms and whether the senior lender permits subordinate debt and an intercreditor agreement
- Combined leverage across senior and mezzanine positions relative to value and cost
Situations where industrial sponsors use mezzanine loans
Sponsors use mezzanine debt to close the gap between what a senior lender will advance and the total capitalization, without bringing in additional common equity partners or giving up ownership.
- Gap Financing: Fill the gap between senior debt proceeds and total capitalization without raising additional common equity. Mezzanine debt provides incremental leverage while maintaining the sponsor's ownership percentage.
- Higher-Leverage Acquisitions: Acquire properties with less equity out of pocket by layering mezzanine debt on top of senior financing. Increase returns on equity by using the additional leverage strategically.
- Recapitalization: Extract equity from a property that has appreciated or stabilized by placing mezzanine debt behind the existing senior loan, returning capital to investors without a full refinance.
- Development Capital Stack Completion: Complete the capital stack for ground-up or major renovation projects where the sponsor has secured senior construction financing but needs additional subordinate capital.
Alternatives and structures nearby
Mezzanine debt sits behind the first mortgage and ahead of all equity. Where a senior lender prohibits subordinate debt, preferred equity often takes the same place in the stack.
For industrial, H Equities also publishes bridge loans, preferred equity, and co-gp equity. The right choice depends on the senior lender's requirements, the sponsor's ownership goals, and how much of the plan's value has already been created.
Risks and trade-offs
Mezzanine debt increases total leverage, so the equity cushion below it is thinner and a valuation miss reaches the mezzanine position before it reaches the senior lender. Accruing structures relieve current cash flow but grow the balance that the exit has to cover. The intercreditor agreement governs what the mezzanine lender can do in a default, and its terms matter as much as the rate.
How to start
Share the deal details including the senior loan terms, the total capitalization, and the gap you need to fill. We evaluate the full capital stack, not just our position. For industrial, include the rent roll or sales plan, the capital budget, and the exit assumptions. H Equities responds with questions or a view on fit, not an automated decision.