Capital Spotlight – Highlighting featured capital investors. We regularly publish the detailed criteria of our most unique real estate capital sources.
In the realm of real estate development, securing the appropriate construction financing remains a pivotal yet challenging endeavor, particularly for projects that necessitate high leverage in secondary and tertiary markets. These challenges often manifest in two distinct scenarios: either sponsors encounter senior debt options with insufficient leverage, or they grapple with the high costs of senior loans which make it financially impractical to secure additional subordinated debt to achieve desired leverage levels of 75-80%.
Valencia Realty Capital (VRC) has been actively engaging with capital providers that specialize in mezzanine and stretch senior debt solutions tailored for small-to-midsize projects, especially within strong secondary and tertiary markets. Our discussions with a notable capital source have unveiled flexible financing options for projects in the $5MM to $20MM range. This provider’s offerings are designed to meet various risk profiles, with mezzanine loans for high-leverage condominium projects priced in the mid-to-high teens, and more favorable rates around 13-14% for lighter value-add multifamily deals. Additionally, stretch senior loans are available with interest rates between 9.0% and 11.5%, emphasizing this capital source’s commitment to providing versatile and strategic financing solutions.
This capital source aims to be more than just a financier; it seeks to establish long-term partnerships that support the growth and success of the projects it finances. They are prepared to fund a wide array of initiatives, from ground-up construction to horizontal development and portfolio recapitalizations, offering non-recourse funding and demonstrating a willingness to work alongside agency loans. Their process is streamlined for efficiency, allowing for swift closings that accommodate the time-sensitive nature of many real estate deals.
Capital Types Offered | Mezzanine Debt, Senior Stretch, Preferred Equity |
Geography | Nationwide with focus on secondary markets and tertiary markets (Min 200K+ population). |
Property Types | Market Rate Multifamily, For-Rent Residential (Condo Rentals included), 55+, Retail, Industrial, Office, Hospitality (selectively), Assisted Living, Independent Living, Manufactured housing, |
Flexible Use of Funds | Acquisition, Ground-up construction, Horizontal construction, Portfolio Recap, Cash in Refinance. |
Construction | Ground Up Construction, Horizontal Construction, Light Value-add |
Sponsorship | Seeking local experts, open to both individual players and larger groups, with a key emphasis on local presence and a solid track record. Financially, looking for a balance in net worth and liquidity. Keen on sponsors willing to work within teams |
Recourse | Typically, non-recourse with standard “bad-boy” carve outs; open to limited recourse |
Check Size | $5MM to $20MM |
Loan to Cost / Loan to Value | Construction – 65-75% (subject to UW metrics) |
Interest Rate / Returns |
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Origination Fees | 2.0% all-in (can be flexible between points in and out) |
Payment Structure (for Mezz/Pref) | 9.0%-11.0% current pay with balance accruing |
Term | 2-3 years; can match senior up to 5 years |
Prepayment Structure | Flexible on min multiple, but usually targeting around 18-24 months of min interest |
Underwriting Requirements (Based on Investor’s UW) | DSCR: Min 1.25 Debt Yield: Subject to market – Seeking a 150-200 bps spread between debt yield and cap rates. Typically targeting an 8.0% debt yield on existing multifamily, and 8.5-9% for ground up construction. |
Collateral Requirements | Second Mortgage; UCC/Perfected Pledge; Preferred Equity Units |
Intercreditor Requirements / Recognition Agreements | Requires intercreditor in most instances. ** Willing to structure behind agency debt (both Freddie Mac and Fannie Mae) with a preferred equity |
Deposits | Market deposits. Vary with deal size. |
Closing Time Frame | 30-60 days, subject to quality of senior debt and familiarity with the location |
If this capital source may be of interest, book a call to discuss a potential capital arrangement.
Read our last Capital Spotlight: Capital Spotlight: Streamlined Equity Cash Flow Financing for Transaction Shortfalls and Working Capital