The quick read: It depends on three things, not one. A single higher-leverage bridge loan is usually the simplest stack, but it reprices every dollar you borrow. Mezzanine debt reprices only the gap, yet it lets a second lender take your ownership entity through a fast UCC sale. Preferred equity adds no debt, but it buys control rights that can remove you as manager. Compare all three on blended cost, default remedies and how cleanly your exit refinance retires them.
Why the gap exists: CBRE's Q2 2026 lending data put the average commercial LTV at 59.6%, down from 60.8% a year earlier, with multifamily at 63.3% (CBRE, August 3, 2026)
Senior bridge in the example: 65% of a $10.0 million purchase, or $6.5 million (hypothetical)
Target capitalization in the example: 80%, or $8.0 million, leaving a $1.5 million gap (hypothetical)
Mezzanine default remedy: a sale of the pledged ownership interests under UCC Article 9, where 10 days' notice is deemed reasonable in a non-consumer transaction (UCC 9-612)
Preferred equity default remedy: whatever the operating agreement says, typically a change of control or a forced sale
This guide is about one decision at acquisition: how to fill the gap between the senior loan you were offered and the leverage your plan needs. For how loan-to-cost and loan-to-value each cap proceeds, see LTV vs LTC on a bridge loan.
Should you replace a 65% bridge loan, add mezzanine debt or bring in preferred equity?
You should choose between a higher-leverage bridge loan, mezzanine debt and preferred equity by comparing the blended cost of the whole stack, the remedies each capital provider holds on a default, and the cost of retiring each one at your exit refinance. The cheapest coupon on paper is often not the cheapest stack.
Start with the reason the senior lender stopped at 65%. CBRE reported that average commercial loan-to-value ratios on loans it originated or brokered fell to 59.6% in Q2 2026 from 60.8% a year earlier, and multifamily eased to 63.3% from 65.8%, while debt service coverage rose to 1.43 and debt yield to 10.2%. Lenders were competing on price, not proceeds. A 65% offer is not an insult in that market. It is the lender telling you how much of the risk it wants to hold.
That gives you three ways to fill the gap. You can find a different senior lender willing to hold more of the risk in one loan. You can keep the 65% senior loan and add a mezzanine lender behind it. Or you can keep the senior loan and raise preferred equity, which sits above your common equity but below all debt. Each one moves risk to a different party, and each party protects itself differently.
How does one example deal look financed three ways?
One hypothetical $10.0 million transitional acquisition shows how the three structures differ: the senior bridge loan offers 65%, or $6.5 million, the sponsor wants 80% total capitalization, and the $1.5 million gap is filled by a bigger bridge loan, mezzanine debt or preferred equity. Sponsor cash is the same; risk is not.
Table: One hypothetical $10.0 million acquisition, three ways to fill a $1.5 million gap (example figures, not market quotes)
| Factor | Higher-leverage senior bridge | 65% senior bridge plus mezzanine | 65% senior bridge plus preferred equity |
|---|---|---|---|
| Senior loan | $8.0 million (80%) | $6.5 million (65%) | $6.5 million (65%) |
| Gap capital | None | $1.5 million mezzanine loan | $1.5 million preferred equity |
| Sponsor common equity | $2.0 million | $2.0 million | $2.0 million |
| Combined leverage the senior lender sees | 80% in one loan | 80% across two loans | 65% debt, 80% including preferred |
| Collateral for the gap | The property, one mortgage | Pledge of the ownership interests in the property owner | No collateral; rights in the operating agreement |
| Remedy on default | Mortgage foreclosure under state law | UCC Article 9 sale of the pledged equity | Change of control, removal of the manager, or forced sale |
| Documents between capital providers | None | Intercreditor agreement | Senior lender consent to the equity terms |
| What the exit refinance must retire | One loan | Two loans, each with its own prepayment terms | One loan plus the preferred return and redemption |
Read the table by row, not by column. The higher-leverage bridge loan is the simplest legal structure and the most expensive per dollar if the lender charges more for the extra leverage. The mezzanine stack keeps the cheaper senior pricing on 65% of the money. The preferred equity stack keeps the senior loan at 65% on paper, which some exit lenders care about, but it gives a third party a seat in your ownership.
Which option costs the least once you blend the rates?
The cheapest option is the one with the lowest blended cost across the whole stack, and a higher-leverage bridge loan wins only when its price premium on every dollar costs less than the mezzanine or preferred premium on the gap. On an $8.0 million stack, small changes on the whole loan add up quickly.
The arithmetic is simple, and it uses no market rates. In the hypothetical deal, each 0.25 percentage point a higher-leverage lender adds to the full $8.0 million loan costs $20,000 a year. Each full percentage point that mezzanine debt prices above the senior loan, on only $1.5 million, costs $15,000 a year. So a 0.25-point premium on the whole loan is roughly equal to a mezzanine coupon about 1.33 points above the senior rate.
Break-even rule for this example: mezzanine spread over senior rate = 5.33 × the higher-leverage lender's premium (because $8.0 million divided by $1.5 million is 5.33)
If the higher-leverage lender quotes 1.00 point more than the 65% loan, mezzanine wins only if it prices within about 5.33 points of the senior rate. Run the same test on preferred equity, using its preferred return in place of the mezzanine coupon, and add any profit participation the investor takes at sale. Then add fees: origination, exit fees and legal costs for a second set of documents. These are illustrative calculations, not quotes, and the result flips with real term sheets.
Cost is also cash-flow timing. A current-pay coupon reduces cash available for your business plan every month, while an accruing preferred return defers the cost to the refinance or sale, where it may be larger. Ask each provider whether payments are current, accrued or a mix, and model both.
What happens to you on a default under each structure?
On a default, a senior bridge lender must foreclose its mortgage under state law, a mezzanine lender can sell your pledged ownership interests under UCC Article 9 after as little as 10 days' notice, and a preferred equity investor uses whatever change-of-control rights the operating agreement grants it. The remedy matters more than the rate.
The mezzanine remedy is the one sponsors underestimate. UCC 9-610 lets a secured party, after default, sell or otherwise dispose of the collateral, provided every aspect of the disposition, including the method, manner, time and place, is commercially reasonable. UCC 9-612 says that in a transaction other than a consumer transaction, a notification sent after default and 10 days or more before the earliest time of disposition is sent within a reasonable time. UCC 9-610(c) lets the secured party itself buy the collateral at a public disposition. Here, the collateral is your membership interest in the entity that owns the property, so the buyer at that sale takes over the entity that owns the building, still subject to the senior loan, without a foreclosure.
Preferred equity has no lien and no UCC sale. Its leverage sits in the operating agreement: the right to remove the managing member, to take over day-to-day control, or to force a sale if the preferred return is not paid or a milestone is missed. Read those triggers as closely as a loan covenant. A soft trigger tied to a construction date or a leasing target can hand control to the investor while the senior loan is still current.
A single higher-leverage senior loan leaves one creditor and one remedy, mortgage foreclosure, whose timing depends on the state and the process. That is not a reason to choose it, but it is the simplest default picture of the three.
How do the senior lender's consent and intercreditor terms change the answer?
The senior lender's consent and intercreditor terms often decide which structure is possible at all, because most senior bridge loans restrict additional debt and changes of control, so mezzanine debt needs an intercreditor agreement and preferred equity needs the senior lender to approve its control rights before closing.
Ask the senior lender, in writing and before you sign its term sheet, whether it will permit mezzanine debt or preferred equity behind it, what combined leverage it will accept, and whether it has its own form of intercreditor agreement. Those terms set cure rights, purchase options and who may take ownership after a mezzanine default, and they vary by lender. Our mezzanine financing page explains how the layer works, and the glossary entry on preferred equity defines the equity alternative.
Bank-regulatory definitions show why the answer is lender-specific. For national banks, the supervisory loan-to-value limit for improved property is 85%, and the definition says the total amount of all senior liens on or interests in the property should be included in determining the ratio (12 CFR Part 34, Subpart D, Appendix A). That 85% supervisory limit sits well above the 59.6% CBRE average, and a bank may exceed it for a capped volume of exception loans, which tells you the market's lower leverage is a credit choice, not a regulatory requirement. Non-bank bridge lenders set their own limits.
How does each structure affect your exit refinance?
Each structure must be retired at the exit refinance, and the exit loan has to be large enough to repay the senior bridge, any mezzanine balance with its prepayment terms, and any preferred equity with its accrued return, so the gap capital you choose now sets the proceeds your takeout must reach later.
A single higher-leverage bridge loan has one payoff figure and one set of prepayment terms. A mezzanine loan adds a second payoff, often with its own minimum interest or exit fee, which you must read before you sign. Preferred equity adds a redemption amount, which may include accrued returns and a profit share, and some exit lenders also look at how much of the equity was sponsor capital.
Run the takeout test before closing. Take your stabilized net operating income, apply the debt yield and coverage a permanent lender is likely to require, and check that the resulting loan repays everything in the stack. CBRE's Q2 2026 averages, a 1.43 debt service coverage ratio and a 10.2% debt yield on loans CBRE originated or brokered, are a reasonable reference point for that test, not a promise of what your lender will set.
How do you get a higher-leverage acquisition stack placed with lenders?
You get a higher-leverage acquisition stack placed by sending senior and gap-capital lenders one package that shows combined loan-to-value and loan-to-cost, the sponsor cash left in, the business plan and the exit refinance math, so each lender can see what it is asked to sit behind or in front of.
YieldStack is a commercial mortgage brokerage, not a lender. It costs Zero upfront to submit a deal and review offers; YieldStack's broker fee is 0.50–1.00% of the loan amount and is paid only at closing. Every credit decision is made by the lender; YieldStack arranges the introductions and negotiates on the borrower's side, and no loan, rate, or closing is guaranteed.
Build the package around the questions both layers will ask:
Capital stack: senior loan, gap capital and sponsor common equity in dollars and percent of price and cost
Sponsor cash left in: the dollar amount of sponsor equity that remains after closing
Business plan: capital budget, timeline and the leasing or renovation milestones the gap provider will track
Exit refinance: stabilized net operating income, the takeout loan size it supports, and the payoff of every layer
To see which program types fit your property first, try the lender match tool, or share your loan request for lender review.
The bottom line
When a bridge lender stops at 65%, compare three stacks, not three rates. A higher-leverage bridge loan is simplest but reprices every dollar; mezzanine debt reprices only the gap but can be enforced by a UCC sale of your ownership after 10 days' notice; preferred equity adds no debt but buys control rights. Get senior consent in writing, and test the exit refinance before closing.