Private investor or Private lender? New Capital stack arrangement

[Jace Holt]

This is directed at others who have raised investment money in the past. I've raised cash for equity in the past but I'm interested in offering private second position debt that behaves similar to mezzanine debt and completely replaces equity investors. What are some of the nuances of offering debt vs equity for private money? If either have second position on recourse (secondary to cheaper bank financing money), they behave fairly similar (depending on the offering structure). The difference is debt seems to be a simpler and cleaner investment because the returns are spelled out exactly but the upside is capped. What returns are private lenders expecting in today’s development market? Has anyone used mezzanine debt and would they like to share any experience or insights?

The main reason I am interested is I'm taking over more of the construction side from a separate entity construction company that I will own part of. I just want a cleaner line so it's simpler to say what costs belong with the construction company and making sure things aren't overbid. Cost-plus contracting can somewhat address that, but it's almost worse because there is no hard line in the bid. It is not presently a problem, I'm just trying to look ahead and prevent conflict of interest with this business structure.