Mezzanine financing fills the gap between senior debt and equity in a real estate deal's capital stack. It is typically structured as a loan secured by the borrower's ownership interest in the property-holding entity rather than by a lien on the property itself. This subordinate position carries higher risk for the lender, resulting in higher interest rates (10-20%) and often equity participation through warrants or conversion rights. Commercial real estate investors and syndicators use mezzanine debt to reduce the equity required in larger deals, effectively increasing leverage while preserving ownership.