Hotel sale-and-leaseback and mezzanine finance

Who can borrow and what providers look for

A sale-and-leaseback investor is buying a property let to you, so they underwrite the lease and the covenant: the strength of the operating company, the length and terms of the lease, the rent cover against the hotel's EBITDARM, and the desirability of the property if the lease ever fell away. A strong operator on a long lease at a sensible rent attracts the keenest yield and therefore the highest capital. A mezzanine provider underwrites the deal behind the senior lender: they want a credible business plan, real equity beneath them, and comfort that the combined senior and mezzanine debt is still covered by the trade or the development value. Both look hard at the operator, because the rent or the interest is paid out of the hotel's performance. We package the covenant and the plan for the right provider, and we structure the intercreditor and lease terms so senior, mezzanine and equity all sit comfortably together.

How much you can borrow or release

The two routes scale differently. A sale-and-leaseback is sized by the rent and the investor's yield rather than a loan to value, so a strong operator on a long lease can release up to the full value of the property, far more than debt against the same building would advance. London prime hotel yields sat around 5.0 to 6.0 percent in the first half of 2025 per Cushman and Wakefield, which is what sets the capital a given rent will release. Mezzanine is sized to fill the gap between the senior facility and the equity a borrower wants to commit, typically lifting total leverage toward 75 to 85 percent of cost on a strong acquisition or development. The more robust the trade or the development value, the more comfortable a mezzanine provider is sitting behind the senior lender. We model the rent and yield on a leaseback, and the senior, mezzanine and equity layers on a mezzanine deal, so you can see the capital each route releases.

Costs and the trade-offs

A sale-and-leaseback has no interest rate, because it is a property sale rather than a loan; its cost is the rent you pay over the life of the lease, the loss of future property upside, and the exposure to rent reviews. Against that, it releases more capital than debt and can be cheaper than equity. Mezzanine carries a high coupon, indicatively into the low-to-mid teens a year, because it ranks behind senior debt and takes more risk, so it is used to fill a gap rather than as core funding, and the blended cost of senior plus mezzanine is what matters. Both routes carry legal, valuation and arrangement costs, and a mezzanine deal needs intercreditor documentation between the lenders. We disclose our broker fee in writing, weigh the all-in cost of each route against simply committing more equity, and never claim an exclusive tie to any provider.

Sale-and-leaseback, mezzanine or senior debt alone

These structures answer the question of how to raise capital when senior debt alone will not stretch. A sale-and-leaseback releases the most capital, up to the full property value, but gives up the freehold, the upside and adds a long rent obligation, so it suits an operator who values capital and control of the operation over owning the bricks. Mezzanine keeps you owning the asset and simply tops up the funding, lifting leverage at a higher cost on the top slice, so it suits a borrower who wants to commit less equity on an acquisition or development. Senior debt alone is cheapest but lends least. We model all three against your goal, whether that is maximum capital out, minimum equity in, or the lowest blended cost, so the structure fits the plan rather than the other way round.