Often used when much of the necessary funding is coming from bank lending, but an additional investor or ‘mezzanine lender’ is needed to provide the rest. It’s important to realise that the bank gets repaid first, then the mezzanine lender. Any additional profits go to developer.
There are several advantages. It’s simple to set up, the developer retains control over the development, and the investor may receive a share of development profits in addition to (or instead of) interest calculated at an agreed interest rate.
However, the developer usually needs to contribute equity to set up the SPV, and it may not be tax-efficient for the investor.