Mezzanine Loans 2026: 1.5% of Credit REIT Loans in Q3 10-Qs

What a mezzanine loan is, in the filings' own words

A commercial property is usually financed in layers. The senior mortgage is first in line and is secured by the property. Behind it can sit a mezzanine loan, then preferred equity, and last the common equity of the people who own the building (our description of the capital stack). The filings define the pieces this way.

TPG RE Finance Trust's 10-Q says its loans “are typically collateralized by real estate, or in the case of mezzanine loans, by a partnership interest or similar equity interest in the entity that owns the real estate securing the Company's first mortgage loan.” It also explains how its mezzanine loans arise: “When the Company creates structural leverage through the co-origination or non-recourse syndication of a senior loan interest to a third party, the Company retains on its balance sheet a mezzanine loan.” In other words, a lender can sell the senior piece of its own loan to someone else and keep the junior piece.

Starwood Property Trust separates a related instrument: “Subordinated mortgages include B-Notes and junior participation in first mortgages where we do not own the senior A-Note or senior participation.” Blackstone Mortgage Trust lumps them together: “Subordinate loans include: (i) loans in which we have previously originated a whole loan and sold a senior mortgage interest to a third party, resulting in these subordinate interests in mortgages, (ii) mezzanine loans, and (iii) the subordinate portion of loans that have been modified that have resulted in a restructured senior loan and a subordinate loan.”

Sources: Forms 10-Q of TPG RE Finance Trust (accession 0001630472-26-000030), Starwood Property Trust (0001465128-26-000031), Starwood Credit Real Estate Income Trust (0001193125-26-457352); Form 10-K of KKR Real Estate Finance Trust for 2025 (0001628280-26-005092). The layer order and the right-hand column of the first and last rows are our description.

What the lender is exposed to is spelled out in KKR Real Estate Finance Trust's 2025 10-K: “Mezzanine loans are by their nature structurally subordinated to more senior property-level financings. If a borrower defaults on our mezzanine loan or on debt senior to our loan, or if the borrower is in bankruptcy, our mezzanine loan will be satisfied only after the property-level debt and other senior debt is paid in full.” It adds that “mezzanine loans may have higher loan-to-value ratios than conventional mortgage loans, resulting in less equity in the property and increasing the risk of loss of principal. As a result, a partial loss in the value of the underlying collateral can result in a total loss of the value of the mezzanine loan.” And taking the property back is not the end of the problem: “even if we are able to foreclose on the underlying collateral following a default on a mezzanine loan, we would be substituted for the defaulting borrower and, to the extent income generated on the underlying property is insufficient to meet outstanding debt obligations on the property, may need to commit substantial additional capital.”

We did not find in these 10-Qs an explanation of how a mezzanine lender enforces its pledge (the quarterly reports leave that to the annual report's risk factors), so this page does not describe the foreclosure process beyond what KKR's 10-K says.

The census: seven listed mortgage REITs

Each row uses the table and the accounting basis the 10-Q itself uses, so the percentages are close but not strictly comparable (our arithmetic).

Sources: the Forms 10-Q named in the first column. Shares are our arithmetic on each filing's own basis; totals for Blackstone Mortgage Trust, KKR Real Estate Finance Trust, TPG RE Finance Trust and Ladder Capital tie to the XBRL data filed with the same accessions.

Blackstone Mortgage Trust has the largest labelled share of the listed group, and it is still adding: its 10-Q says it invested “$ 32.6 million in two mezzanine loans to unaffiliated third parties” in the nine months ended September 30, 2026, in positions where Blackstone-advised vehicles also invested at the same level of the capital structure. Its subordinate loans are the weak spot of the book: four of the 13 are rated 5 (the worst grade; $126 million, $14 million, $11 million and $1 million of amortized cost, $152 million together, our arithmetic) and one is rated 4 ($57 million). Two impaired subordinate loans with $61.9 million of asset-specific reserves were moved to held-for-sale at September 30 and sold after the quarter ended. See our Blackstone Mortgage Trust loan-book page for the whole book.

Franklin BSP Realty Trust's 11 mezzanine loans are rated 2 or 3 (ten rated 2, one rated 3, our reading of its table), and the mezzanine total rose from $44.6 million at December 31, 2025 to $51.8 million. Ladder Capital's fell from $7.3 million to $2.7 million. More on each in our Franklin BSP Realty Trust and Ladder Capital pages.

The census: five non-traded credit REITs

Sources: the Forms 10-Q named in the first column; tables are each filing's loan note or loan-by-loan table. Shares are our arithmetic: mezzanine amount over the fair value of loans (Invesco: $27.410 million over $6,603.161 million).

Principal Credit Real Estate Income Trust's 10-Q does use the word mezzanine, but for shares: Class E shares held by trustees and employees of its adviser and Class A shares held by anchor investors “are classified in mezzanine equity,” an accounting term for shares that can be redeemed, not a loan. It has nothing to do with mezzanine debt.

FS Credit Real Estate Income Trust, the largest of the group, is not in the totals. Its September 30 10-Q was not on EDGAR on November 13, 2026. Its June 30, 2026 10-Q (accession 0001628280-26-057041) shows 139 loans with a principal balance of $8,491.3 million and a separate reserve pool for mezzanine loans ($5.967 million of the $69.864 million total reserve), but the text we read does not state the mezzanine loan balance, so we cannot give a share. See our FS Credit REIT review.

What the labels hide

A census of line items can mislead because the lenders do not label the same thing the same way.

• Contiguous mezzanine is counted as senior. Starwood Property Trust's note says that “First mortgages include first mortgage loans and any contiguous mezzanine loan components because as a whole, the expected credit quality of these loans is more similar to that of a first mortgage loan.” The effect is that “mezzanine loans with carrying values of $ 1.4 billion and $ 1.3 billion” were classified as first mortgages at September 30, 2026 and December 31, 2025, against $276.6 million in the mezzanine line. When the lender owns both the first mortgage and the mezzanine behind it, the mezzanine does not rank behind anyone else's money, which is the argument for the label.
• When it is behind someone else's money, it is not senior. Ares Commercial Real Estate shows its New York loan ($144.9 million carrying value) and Illinois loan ($134.6 million) among its senior mortgage loans, with footnotes saying each “is structured as both a senior and mezzanine loan with the Company holding contiguous positions,” and that both were on nonaccrual at September 30, 2026. The filing does not split the amounts. They are 16% of the portfolio (our arithmetic: $279.5 million over $1,738.1 million), against 1.13% in its subordinated line.
• Whole loans with a mezzanine note. Invesco's loan list marks five New York apartment loans with a footnote saying the “Whole loan includes a senior mortgage loan and mezzanine note,” and its other footnote folds “related contiguous subordinate loans and accommodation mezzanine loans” into senior loans.
• Different bases. Blackstone Mortgage Trust reports amortized cost, KKR principal, Starwood and Franklin BSP carrying value, the non-traded vehicles fair value. The differences are small next to the totals but are why we give each row's basis.

Troubled mezzanine: what the 10-Qs report

Sources: Forms 10-Q for September 30, 2026: KKR (0001628280-26-067912), Starwood Property Trust (0001465128-26-000031), Blackstone Mortgage Trust (0001061630-26-000097), Ares Commercial Real Estate (0001628280-26-072306), Franklin BSP Realty Trust (0001562528-26-000033), Fortress Credit Realty Income Trust (0001193125-26-458196). Counts of Blackstone's loans by rating are our reading of its subordinate table.

For context on how these lenders are doing overall, see our commercial mortgage REIT dividends and delinquencies comparison (June 30 data) and the Starwood Property Trust loan book page.

Two vehicles that are not in the census

Apollo Commercial Real Estate Finance (ARI) is liquidating, not merged. Its 8-K of November 12, 2026 (accession 0001193125-26-458415) says that in accordance with the Plan of Complete Liquidation and Dissolution approved by stockholders on September 29, 2026, ARI transferred its remaining assets and liabilities to Apollo Commercial Real Estate Finance Liquidating Trust on November 9, 2026, all of its shares were cancelled and “ARI deregistered with the Securities and Exchange Commission.” It filed a Form 15 on November 9, 2026 (accession 0001193125-26-453706) and has no Q3 10-Q. See our ARI stock page.

FS Credit Real Estate Income Trust (above) had only its June 30 10-Q on file on November 13, 2026.

A worked example: who loses what

This example is our arithmetic, with round numbers and no costs, fees or accrued interest. A building is worth $100 million and is financed with a $60 million first mortgage, a $15 million mezzanine loan and $25 million of the owners' equity.

Our arithmetic. The mezzanine loan starts losing money once the value drops below $75 million (60% plus 15% of the original value, a 25% fall); the first mortgage does not lose money until the value is under $60 million (a 40% fall).

The lesson for the investor in a credit REIT is the one KKR's 10-K gives: because the mezzanine sits just under the first mortgage and over a thin layer of equity, “a partial loss in the value of the underlying collateral can result in a total loss of the value of the mezzanine loan.” A mezzanine loan pays more interest to compensate: in these 10-Qs the weighted average rate on mezzanine loans was 10.3% at Starwood Property Trust, 11.66% at Ladder Capital and 12.00% at Invesco Commercial Real Estate Finance Trust, against 6.28% to 7.47% on senior loans at Invesco and Ladder.

What a reader can do with this

• Find the line in your own fund. Open the latest 10-Q, find the note called Loans (or “Commercial Real Estate Loan Investments”) and read the loan types. If there is no mezzanine line, look for the words “contiguous,” “subordinate,” “B-Note” and “accommodation” in the footnotes before concluding there is none.
• Compare labelled mezzanine with what sits inside “senior.” The Starwood Property Trust and Ares Commercial Real Estate examples above are the reason: the label can say 1% while the loans behind a first mortgage are many times that.
• Check the ratings and the nonaccruals, not the percent. A fund with 1% mezzanine that is all rated 5 and on nonaccrual (KKR's loan) is a different risk from one with 3% rated 3.
• Remember the second layer of leverage. Several non-traded credit REITs also borrow against their loans; the mezzanine share is a share of loans, not of your equity. Our pages on Invesco Commercial Real Estate Finance Trust, Goldman Sachs Real Estate Finance Trust, Fortress Credit Realty Income Trust, Starwood Credit Real Estate Income Trust and Principal Credit REIT show each one's debt to NAV, exit terms and distributions.
• If you are a sponsor weighing mezzanine, the comparison to make is its price against the equity you would otherwise raise: at 10% to 12% a year, as these filings show, it costs close to what equity investors expect, with lender-style covenants and a pledge of your ownership interest.

Across the eleven vehicles that report an amount, mezzanine and subordinate loans were $943.8 million of $62,032.6 million of loans, or 1.52% (our arithmetic). Whether that is the right amount for six or seven figures of your own money depends on things this page cannot see: how much of your portfolio is in real estate credit, when you might need the cash, and what your fund's debt and exit terms are.

FAQ

Sources, read on EDGAR on November 14, 2026: Forms 10-Q for the quarter ended September 30, 2026 of Starwood Property Trust (accession 0001465128-26-000031), Blackstone Mortgage Trust (0001061630-26-000097), KKR Real Estate Finance Trust (0001628280-26-067912), Ares Commercial Real Estate (0001628280-26-072306), Ladder Capital (0001577670-26-000055), TPG RE Finance Trust (0001630472-26-000030), Franklin BSP Realty Trust (0001562528-26-000033), Starwood Credit Real Estate Income Trust (0001193125-26-457352), Invesco Commercial Real Estate Finance Trust (0001976927-26-000088), Goldman Sachs Real Estate Finance Trust (0001628280-26-073702), Fortress Credit Realty Income Trust (0001193125-26-458196) and Principal Credit Real Estate Income Trust (0001628280-26-073425); the Form 10-Q for June 30, 2026 of FS Credit Real Estate Income Trust (0001628280-26-057041); the Form 10-K for 2025 of KKR Real Estate Finance Trust (0001628280-26-005092); the Apollo Commercial Real Estate Finance Form 15 (0001193125-26-453706) and Form 8-K (0001193125-26-458415); and XBRL company facts from data.sec.gov for the loan totals of four of the lenders. Shares, sums and the worked example are our arithmetic. This is analysis of public documents, not investment, legal or tax advice.