Capital Spotlight – Highlighting featured capital investors. We regularly publish the detailed criteria of our most unique real estate capital sources.
This CRE fund specializes in providing preferred equity and mezzanine financing solutions for new construction projects and various asset classes across the U.S. (excluding the Northeast). Their adaptable approach and commitment to solving problems make them a valuable ally for real estate developers.
Tailored Investment Strategy
This fund’s preferred equity and mezzanine investments are designed to cater to a range of project types and asset classes, including multifamily, industrial, retail, manufactured housing, and senior housing.
Proceeds Sizing & Pricing
With a check size ranging from $1 million to $10 million, the fund provides critical capital for projects in the Midwest, parts of the South, and parts of the West. Their willingness to work with new construction projects (albeit primarily with known developers), underscores their commitment to CRE growth and building trust-based relationships. The fund offers competitive rates, typically in the mid-teens (14-17%), with recent deals averaging around 16%, ultimately dependent on deal risk profile. Their preference for current pay underscores their need to be compensated before other stakeholders, although they remain flexible on the exact structure of current payments to adhere to a project’s needs. Underwriting criteria are tailored to the specific asset class, with a general aim to reach up to 85% loan-to-value (LTV) or loan-to-cost (LTC), though usually falling below this threshold. Stabilized debt yields depend on the specific project, ensuring a tailored approach to each investment. Generally speaking, their target minimum debt yield ranges from 7.5%-8.5% depending on location, asset class, and general deal risk profile.
Investment & Closing Timeframes
The fund is adept at working with various senior lenders and prefers preferred equity that is co-terminus with agency debt. However, they do not extend to 10-year deals, focusing instead on terms up to 5 years. One of the standout features of this fund is its efficient closing time frame, ranging from 3 to 8 weeks, while competitors in the preferred equity space often require a minimum of 30-45 days to close. This speed allows developers to move quickly on opportunities.
Problem-Solving Expertise
This fund prides itself on its ability to solve complex financing problems, providing solutions that ensure projects remain viable and successful. They require some form of coverage, typically an interest reserve, to mitigate risks and ensure steady returns.
Recent Performance and Future Plans
With six deals completed this year and a nationwide focus, the fund demonstrates both its capability and flexibility. They are committed to expanding their reach and continuing to provide valuable financing solutions for diverse CRE projects.
Conclusion
For real estate developers seeking flexible and creative preferred equity and mezzanine financing solutions, this CRE fund offers a unique blend of strategic focus, competitive pricing, and robust risk management. Their ability to bridge financing gaps for various asset classes makes them an invaluable partner in achieving project-level and portfolio-level goals.
| Construction | Preferred Equity /Mezzanine Debt |
| Geography | Technically Nationwide – Excluding the Northeast . (Primary focus on TX, SE, resilient Westcoast markets, and the Midwest). |
| Property Types | Multifamily, Industrial, Retail, Manufactured Housing, and Senior Housing |
| Use of Funds | Uses of funds can be flexible; will fund acquisition, construction, Capex, etc. |
| Construction | Ground Up Construction, Construction-Completion, Heavy Value-Add, Light Value-add |
| Mixed Use | Will selectively consider |
| Sponsorship | They require the sponsor to have completed similar roundtripped deals, however looking for pre-institutional partners. They are seeking relevant experience operating in the market of the subject transaction. They are focused on high-integrity sponsors. Specifically regarding construction projects, this group typically prefers to have experience with the sponsor prior to investing in any ground-up projects. |
| Recourse | Typically non-recourse with standard “bad-boy” carve outs; Typically will lean on the Senior guarantee requirements. |
| Check Size | $1MM-$10MM |
| Loan to Cost / Loan to Value | Construction: 75-85% LTC; Acquisition / Recap: 65 – 75% LTV (subject to underwriting criteria) **Typically subject to a minimum debt yield requirement of 7.5%-8.5%, but not always, as this fund take an “equity mindset” in determining in-place and stabilized value |
| Sponsorship Equity Contribution | Sponsors must have a cash investment in the deal. They may consider imputed equity as part of the sponsor’s equity contribution. **subject to strong comp support. |
| Interest Rate / Returns |
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| Origination Fees | 1.0%-2.0% in, 1.0% out |
| Payment Structure | Partially current, partially accrued **subject to deal risk profile and what is structurally most conducive to project success |
| Term | Typically looking to match the term of the senior lender (up to 5 Years) |
| Prepayment Structure | 1.3x – 1.6x minimum multiple **subject to deal risk profile |
| Underwriting Requirements (Based on Investor’s UW) |
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| Collateral Requirements (If sub-debt) | UCC Lien, Pledge of equity |
| Intercreditor Requirements / Recognition | Typically yes, but case-by-case **subject to type of financing in senior position |
| Deposits | Market standard deposit required upon signing of term sheet to fund appraisal, environmental, title, legal. ** deposits are subject to deal size. |
| Closing Time Frame | 3 – 8 weeks ** subject to pace and efficiency of due diligence |
| Approval Process | 1-2 weeks to obtain a term sheet with signoff from team. Upon signing of term sheet, final due diligence is completed (1-2 weeks), with the balance of time used to coordinate legal/closing items. |
If this capital source may be of interest, book a call to discuss a potential capital arrangement. Read our last Capital Spotlight: Private Fund Offers Attractive Senior Perm Facilities as a Bank Alternative.