Capital Spotlight: $2MM-$7MM Preferred Equity Checks for Value-Add and Development Projects
Valencia continues to see an increase in stronger quality investment opportunities, especially in the value-add multifamily and industrial spaces. That said sponsors are still struggling to raise institutional and non-institutional equity in the small and middle markets. With that in mind Valencia has been working diligently to expand its network of small balance preferred equity providers, that are capable of structuring higher leverage solutions without jeopardizing the security of the equity in the deal.
The capital source highlighted in this capital spotlight has raised a new fund and provides preferred equity solutions tailored to sponsors seeking higher leverage for newer vintage multifamily, ground up multifamily and value-add industrial across the US. They are typically achieving higher leverage by utilizing a participating preferred equity structure.
This capital source focuses on opportunistic and value-add investments, their following high-level terms are as follows:
- Loan to Cost: Up to 85% LTC **dependent on sponsor net worth and liquidity
- Cost of Capital: 15-18% base preferred return
- Check Sizes: $2MM – $7MM
- Lender Points: 1-in, 1-out
- Payment Structure: Partial current pay (6-8%), partially accrued payment (remaining balance), plus (10-20%) participation in sponsor’s carried interest **subject to final project returns
Sponsor Profile & Closing Process
This capital source prioritizes sponsors with a strong track record in similar projects and typically avoids first-time developers. Institutional LP equity participation is a plus. Their process is efficient and relationship-driven, with initial feedback within one week and a term sheet issued within 2-3 weeks, depending on deal complexity.
For sponsors seeking a small balance preferred equity check to solve an equity need on their deal, this group offers an effective solution.
Capital Structure Overview
| Capital Types | Traditional Preferred Equity & Participating Preferred Equity |
| Geography | Nationwide – East Coast Preference |
| Property Types | Multifamily (Class A/B), Build-to-Rent (BTR), Industrial, Select Retail |
| Vintage | 90’s and newer **Multifamily |
| Deal Types | Value-Add & Ground-up development |
| Leverage | Up to 85% LTC **Strong high net worth, liquidity and guarantees required for LTC over 80% |
| Check Size | $2MM – $7MM |
| Cost of Capital | Typically, 6-8% **however fully accrued options are available |
| Lender Points | 1 in, 1 out |
| Term | 2-3 Years + Extensions |
| Senior Loan Requirements | Max 70% leverage |
| Closing Time Frame | 45-60 days |
If this capital source may be of interest, book a call to discuss a potential capital arrangement. Read our last Capital Spotlight: “Private Permanent” Agency/CMBS Alternative Offers 1.0X-1.15X DSCR up to 80% LTV