Mezzanine finance for industrial and warehouse development

Industrial and warehouse property has been one of the strongest UK asset classes of the past decade, driven by the growth of online retail, the reshaping of supply chains and a chronic shortage of modern logistics space near population centres. The sector spans large distribution warehouses, multi-let industrial estates, urban logistics and last-mile units, and trade counters. The buildings are relatively simple to construct, but the value, as with all commercial property, comes from the income the space produces once let.

Investor demand for well located logistics has kept yields keen and made let industrial assets highly saleable, which gives senior lenders more comfort than they have with, say, secondary offices. Even so, they underwrite to the investment exit and hold leverage back on speculative, unlet space. Mezzanine bridges the equity gap so a developer can build and let the asset. We look at the location relative to transport and labour, the specification against occupier needs, and the strength of the letting or pre-let position.

A typical industrial & warehouse capital stack

Strong investor demand for let logistics supports a fuller senior layer than weaker commercial, and mezzanine bridges to an income-producing asset. Illustrative only; every stack is sized case by case.

Why industrial funds more readily than other commercial

Industrial and warehouse space sits in the same investment-value world as offices and retail: the building is worth the income it produces, capitalised at a yield. What sets it apart is demand. The shift to online retail and the reshaping of supply chains have created a structural shortage of modern logistics space, especially near population centres, and investors have chased let industrial assets hard. That keen investor demand makes a let shed highly saleable, which gives senior lenders more comfort than they have with weaker commercial stock and supports leverage a notch higher, toward 88 percent combined.

That said, senior lenders still underwrite to the investment exit and hold leverage back on speculative, unlet space, because an empty warehouse produces no income. Mezzanine finance bridges the equity gap so a developer can build and let the asset rather than funding the letting risk from cash, and it sits behind the senior facility under the usual intercreditor terms.

How mezzanine changes the equity maths

Industrial schemes can build relatively quickly, but the equity still stays in until the space is let and the investment value crystallises. Mezzanine keeps that equity slice thin, letting a developer run more schemes through the pipeline in a sector where speed to deliver space into a supply-constrained market is itself an advantage. The mezzanine leverage calculator shows how the combined leverage lifts the equity return on a shed scheme.

Exit routes we underwrite to

Industrial schemes exit through an investment sale of the let building to a property investor, often an institution or a logistics fund, or a refinance onto long-term investment debt once the space is let. Both value the asset on its rent and yield. Because let logistics is currently in strong demand, the investment exit tends to be more reliable than for secondary commercial, but we still stress the exit against a cautious yield and give the term room for the space to let, particularly on speculative units without a pre-let.

What our underwriting focuses on

• Location relative to the motorway network, labour and population
• Specification against occupier needs, including eaves height and yard depth
• Occupier demand and any pre-let or agreement to lease in place
• The investment yield and exit value the letting supports

Where a scheme is large enough to warrant specialist logistics investment debt on exit, or suits a different structure, we can arrange senior development finance whole of market and tell you which route fits best.