What stretch senior means, and when it beats mezzanine

A stretch senior loan is a single first-mortgage loan sized beyond the leverage a conventional senior lender will provide. Instead of a senior loan with a separate mezzanine loan behind it, the sponsor borrows the full amount from one lender, under one set of documents, at one blended rate.

Why the structure matters now

Conventional senior proceeds are under pressure. CBRE reports that mortgage rates on the permanent loans it closed averaged 6.0% in the third quarter of 2026, up from 5.8% a year earlier, while debt service coverage eased to 1.32 times from 1.38 times. The Federal Reserve raised its target range in September and held it at 3.75% to 4.00% in October. When coupons rise and coverage tightens, a senior loan sized to coverage gets smaller, and the gap to the sponsor's equity gets wider.

That gap has to be filled with something. The choice is usually between mezzanine debt, preferred equity, or a senior lender willing to stretch.

When stretch senior beats mezzanine

• When speed matters. One credit decision and one closing, with no intercreditor agreement to negotiate between two lenders.
• When the business plan will change. Transitional and value-add plans need consents. One lender can give them. Two lenders with different interests often cannot.
• When certainty matters more than the last few basis points. A two-lender stack is only as reliable as its less committed party.
• When the stack is not large enough to justify two sets of costs. Legal, diligence and reserves are paid once.

When mezzanine is still the right answer

If an attractive senior loan is already in place and cannot be prepaid economically, a mezzanine loan or preferred equity behind it preserves that financing. On very large transactions, separating the senior allows it to be placed at the tightest available pricing. The structure should follow the asset, not the other way around.

How we approach it

HWG Private Credit originates and underwrites senior and stretch senior loans directly, alongside B-notes, C-PACE capital, preferred equity and ground lease structures. Because we size the whole stack ourselves, we can tell a sponsor early which combination produces the most proceeds at the lowest blended cost, and then fund the answer.

This article is for general information only. It is not investment, legal or tax advice, and it is not an offer to lend, an offer to sell or a solicitation to buy any security. Past transactions and past performance are not indicative of future results.