Mezzanine Loan Lookback Payment Amount Calculation
Hi, I am taking an asset mgmt class and I’m trying to structure a mezzanine loan. For example:

$1,000,000 loan, interest only, paid monthly for 2yr @12%
And a 25% IRR lookback payment at 333,000

How do we get the 333,000 figure? Where do we get the lookback payment amount? I do not understand
[{"id": "gov46el", "text": "Perhaps plugging in the cash flows and doing a goal seek? Set IRR to 25% by changing the IRR payment. That should calculate the $333,000 amount.", "replies": [], "depth": 1}, {"id": "gowstvg", "text": "Can you clarify the definition of lookback payment in this context? Different places use different vernacular.  My guess is that IRR lookback payment means that the mezz lender gets $333,000, if the equity investor hits a 25% IRR.", "replies": [{"id": "gozpny9", "text": "In this sense the IRR lookback payment means a payment in an amount which brings the annualized internal rate of return on the Loan to 25%, as determined by Lender (i.e. if Lender loans Borrower $1,000,000 interest-only paid on a monthly basis for a term of two years at a 12% annual interest rate, then the Borrower must pay Lender, in addition to a $1,000,000 balloon payment at the end of two years, a 25% IRR Lookback Payment in the amount of $333,000).", "replies": [{"id": "gp0w61m", "text": "Okay, so the mezz lender is making loan at a 25% IRR.  Below are the cash flow line items that you'll want to fill out. The principal amortization line item will show 0's because it's interest-only. The IRR (with lookback payment) should be 25% once you've plugged in all of the numbers. Frankly, I'm still not clear on the point of this question - especially if they've given you all of the numbers (i.e., there is nothing to solve here). Maybe this is just a question to give you some experience with building a cash flow in Excel.\n\n&amp;#x200B;\n\nPrincipal drawdown \n\nInterest payment \n\nPrincipal amortization \n\nPrincipal repayment \n\n**Total cash flows**\n\nIRR\n\nLookback payment \n\n**Total cash flows**\n\nIRR (with lookback payment)", "replies": [{"id": "gp1ny49", "text": "Thank you for your response, there\u2019s nothing to solve, I just don\u2019t understand how we derive the 333,000 number. My financial acumen is seriously subpar for the change in profession I am pursuing, so I just want to learn/comprehend as much as possible. Plus I\u2019ve spent hours trying to figure it out, and simply can\u2019t end in futility.\n\nOn a million dollar investment, 333k looks more akin to 1/3rd rather than 25% (1/4th). So I\u2019m just trying to figure out why it jumps to that number instead.\n\nThis way I will know how to structure my own example of a mezzanine loan in some future case study for example.", "replies": [{"id": "gp6hc80", "text": "You are taking the right approach in asking questions. It's a great way to learn.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}]