Capital Spotlight – Highlighting featured capital investors. We regularly publish the detailed criteria of our most unique real estate capital sources.
As senior construction debt costs rise in conjunction with the limited number of available construction lenders, flexible “gap” capital continues to play an increasing role in construction projects across the U.S. The highlighted investor is an insurance company seeking multifamily and industrial development projects in growing, non-core markets that need leverage up to 75%. Their capital is structured as mezzanine debt with a minimum check size of $10MM, and a 11.0-12.5%, fully accrued, fixed rate (no current payment is required.) The investor aims to find capable mid-market sponsors needing competitively priced capital to bridge the shortfall in their development deals’ capital structures where senior loans are inadequate.
| Capital Type | Mezzanine Construction Debt |
| Geography | Nationwide – Heavily focused on the non-core and secondary markets |
| Property Types | Traditional Multifamily, Student Housing, Industrial, and Retail (selectively). |
| Use of Funds | Uses of funds can be flexible; will fund acquisition and construction with appropriate interest reserves and market sponsor fees. Will also consider imputed equity from land contributions, assuming appropriate support of “market” value. |
| Construction | Exclusively Ground Up Construction |
| Mixed Use | Will consider mixed-use projects |
| Sponsorship | Looking to fund sponsors with relevant experience. Ideally seeking sponsors with an established team and long history of success. However, they will work with “newer” developers if the appropriate team has been assembled and there is strong deal history demonstrated with past teams/jobs. |
| Recourse | Non-Recourse with completion guarantee, and standard “bad-boy” carve-outs. No interest guarantee required. |
| Check Size | $10MM to $45MM |
| Loan to Value | 75% LTC; 65-70% LTV on a stabilized basis (subject to underwriting criteria) |
| Sponsorship Equity Contribution | May consider imputed equity as part of the sponsor’s equity contribution. However, they must verify with strong comp support. Otherwise, will look for cash equity from the sponsor and/or investors. |
| Interest Rate | 11.0% – 12.5% (fixed rate) |
| Origination Fees | 1.5% at closing ** No exit fees or asset management fees |
| Payment Structure | Full PIK (“paid in kind”; accrued rate) with no current payments |
| Term | 2–3-year initial term plus extensions |
| Prepayment Structure | 24-month minimum interest period is typical |
| Underwriting Requirements | Stabilized 1.0-1.1x DSCR |
| Collateral Requirements | 2nd mortgage, and/or Perfected Pledge of equity |
| Intercreditor Requirements | Yes. |
| 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 | 30-60 days |
| Approval Process | If all required underwriting information is available, a committee-approved term sheet may be turned around in approximately two weeks. |
If this capital source may be of interest, book a call to discuss a potential capital arrangement.
Read our last Capital Spotlight: Fund Manager Providing Flexible $5MM to $30MM Senior Loans for Agency Debt and Regional Bank “Fall Outs”