Capital Spotlight – Highlighting featured capital investors. We regularly publish the detailed criteria of our most unique real estate capital sources.

In the current capital markets, sourcing LP equity for construction deals remains a significant challenge, particularly for both established sponsors and emerging managers. This difficulty is magnified when the LP equity requirement falls below a $20MM check size. Recognizing this gap, Valencia Realty Capital (“VRC”) has actively pursued new capital relationships to address the needs of small to middle-market real estate investors and developers.

Recently, VRC had the opportunity to interview a promising capital relationship specializing in deploying $2-15MM participating preferred equity investments for heavy value-add and ground-up construction projects. Operating primarily in the Tri-state, Mid-Atlantic, and robust Southeast and Texas markets, this investor distinguishes itself through its innovative approach to investment structures.
While offering a traditional preferred equity product, this capital source emphasizes a pref/LP hybrid investment structure. Typically providing between 50% to 80% of the required equity, akin to a typical LP source, they prioritize flexibility. In exchange, they expect a genuine preferred return plus the return of their principal investment before any sponsor capital recapture—a feature uncommon in today’s market. They are typically solving for an all-in IRR in the high-teens to low-twenties.

What sets this capital source apart is its extensive experience in ownership and development across various asset classes, including multifamily, industrial, and self-storage. This background instills confidence in assuming a higher last-dollar position in the capital stack for heavy value-add and construction deals. Moreover, the group demonstrates flexibility regarding exit strategies, acknowledging the uncertainty of the current market environment. While adhering to a traditional 18–36-month term, they are open to extending their investment horizon if necessary.

If you are an experienced or emerging real estate developer seeking $2-15MM for an industrial, multifamily, or self-storage project, we invite you to contact us. Together, we can expedite the process and provide you with a tailored quote to meet your needs.

Capital Type

Participating Preferred Equity

Geography

Tri-state Area, Mid-Atlantic, Strong South East Markets and Texas Markets

Property Types

Multifamily, Industrial, Retail, Self Storage, NNN

Vintage (multifamily)

80’s or later subject to market

Use of Funds

Acquisition and Construction

Construction

Ground Up and Heavy Renovation ** Investor is targeting heavy value creation

Sponsorship

Preferring partnerships with established local sponsors experienced in the subject asset class. Ideally, sponsors have at least 1-2 transactions of similar deal experience.

Check Size

$2MM – $15MM

Investment Contribution

50/50 up to 80/20 of required equity

Target Returns

16% – 22% IRR (subject to asset class, deal profile, market, sponsor experience)

Waterfall

(1st) 11-12% Preferred Return (including return of principal), (2nd) Sponsor catch up to an 11-12% return (including Sponsor’s return of principal), (3rd) Negotiated Profit Participation

Senior Loan Requirements

Typically like to see moderate bank leverage (70% or less LTC). Willing to structure behind Fannie and Freddie Agency loans

Target Min Multiple

1.6 – 1.8x

Typical Hold Period

18-36 months (*Willing to allow “tails” on deals for situations where refinance proceeds do not offer a complete takeout of investor’s capital account)

Focused Underwriting Metrics

Yield on Cost – Asset class dependent. 100 – 200bps targeted spread between stabilized yield on cost and exit cap rate.

Timeline to a Term Sheet

Typically, 1-2 weeks

Closing Time Frame

45-60 days (subject to deal profile and check size)

If this capital source may be of interest, book a call to discuss a potential capital arrangement.

Read our last Capital Spotlight: Retro Returns: LP Investor Unlocking Value in 1970s-Era Multifamily Investments