Mezz Default Exposure Calculator

Mezzanine lenders carry tail risk in senior default — size expected loss and cure cost.

Property value

Senior balance

Mezz balance

Value decline %

Foreclosure / workout cost

Expected mezz loss

Distressed value

$42,500,000

Net recovery to mezz

$8,800,000

How the math works

Distressed value − costs − senior = mezz recovery. Loss = balance − recovery.

$50M × 85% = $42.5M − $1.2M = $41.3M − $32.5M senior = $8.8M → mezz fully covered, recovery $7.5M.

How to Use

Enter property value.
Enter senior balance.
Enter mezz balance.
Enter value decline %.
Enter cure/foreclosure cost.
Read mezz exposure.

Frequently Asked Questions

What is mezz debt?

Subordinate loan secured by equity interest in the property-owning entity (typically LLC or LP), not by the real estate itself. Sits between senior debt and equity. Typical structure: senior LTV 65%, mezz stretches to 80-85% LTV. Pricing: 11-18% interest. Position: junior to senior in default; limited cure rights via intercreditor agreement.

What happens on senior default?

Mezz lender has contractual cure right — can advance funds to make senior current, preventing senior foreclosure. Cure window: typically 5-10 business days per default, renewable. Alternative: mezz foreclosure under UCC Article 9 (equity foreclosure, 30-60 days, much faster than senior mortgage foreclosure). Then mezz steps into owner role subject to senior mortgage.

Loss severity?

Senior default + value decline: senior typically recovers 80-100% of balance via foreclosure/sale. Mezz recovers 0-40% typically. Mezz default LGD (loss given default): 60-80% of balance. Recovery timing: 12-36 months. IRR impact severe. Top mezz funds (Cerberus, Oaktree, Pimco, TPG) price for 2-5% annual default rate and assume 50%+ LGD.

Cure vs takeover decision?

Cure: pay senior current, keep property operating, preserve mezz position. Makes sense if: value > senior + mezz, temporary cash flow issue, short-term senior default curable. Takeover: UCC foreclosure on equity, become property owner. Makes sense if: sponsor mismanaging, value-add opportunity, mezz lender has operational capability. Most sophisticated mezz lenders can do both.