Capital Spotlight – Highlighting featured capital investors. We regularly publish the detailed criteria of our most unique real estate capital sources.
In these rapidly evolving real estate capital markets, the need for flexible and creative preferred equity solutions has become increasingly prevalent. This Texas-based private equity fund is seeking for-rent residential development projects in non-core U.S. markets that require leverage up to 75%-80% of the capital stack. Their capital is typically structured as fully accruing preferred equity to not burden the development with unnecessary current pay reserves. The Investor’s construction rates range between 14.0-15.0% with check sizes from $5-30MM. For lower leverage acquisitions or recapitalizations (65-75% LTV), rates are between 12-14%. The fund seeks to work with sponsorship possessing adequate deal experience with projects located in strong secondary and tertiary markets throughout Texas, the Southeast, and Midwest.
| Capital Types Offered | Preferred Equity / Mezzanine Debt / JV Equity |
| Geography | Nationwide – Heavily focused on the non-core and secondary markets. (Focus on TX, SE, Midwest). |
| Property Types | For Rent Residential Products – Traditional Multifamily, 55+, Student Housing, Independent Living. |
| Use of Funds | Uses of funds can be flexible; will fund acquisition, construction, capital expenditures, and recapitalizations. Market rate sponsor fees are allowed, and they will also allow for land contributions assuming appropriate support of “market” value. |
| Construction | Ground Up Construction, Heavy Value-Add, Light Value-add |
| Mixed Use | Focus on multi-family, but will consider deals that have ground-floor retail. |
| Sponsorship | They do not want to be someone’s first deal, 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, and do not have any specific net worth or liquidity requirements outside of what the senior lender requires. |
| Recourse | Typically non-recourse with standard “bad-boy” carve outs; They will lean on the Senior guarantee requirements. |
| Check Size | $5MM to $30MM |
| Loan to Cost / Loan to Value | Construction: 70-80% LTC; Acquisition / Recap: 65 – 75% LTV (subject to underwriting criteria) |
| Sponsorship Equity Contribution | Sponsors must have a cash investment in the deal (willing to consider 90/10 sponsor/LP equity structures as long as the acquisition or developer fees does not remove all cash equity invested). Investor may consider imputed equity as part of the sponsor’s equity contribution; however, they must verify with strong comp support. |
| Interest Rate / Returns | (1) Construction: 14.0% – 15% (Fully Accrued) (2) Acquisition / Recap: 12.0% – 14.0% (8.0%-10.0% paid current), (3) If Mezz for Acq. / Recap: 12.0% – 14.0% (All current pay) (4) JV Equity: 17.0% – 20.0% IRR’s for Construction, and 14.0% – 16.0% IRR’s for Acquisitions and Recaps |
| Origination Fees | 1.0% in, 1.0% out (If sub-debt) |
| Payment Structure | Full accrual and current/accrual options available subject to deal type. |
| Term | Always looking to match the term of the senior lender |
| Prepayment Structure | 1.4x – 1.5x minimum multiple |
| Underwriting Requirements (Based on Investor’s UW) | · Target last $ debt yield for Pref Equity: 7.5% · On construction deals, Investor is targeting deals with a 6.50% – 6.75% YTC · CoC (For Acq’s & Recaps): Investor is trying to achieve a 6.0% CoC return from day 1. |
| Collateral Requirements (If sub-debt) | UCC Lien, Pledge of equity |
| Intercreditor Requirements | Recognition agreements required for subordinate debt structures |
| 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 – 45 days |
| 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: 11-12.5% Fully Accrued Mezzanine for Multifamily & Industrial Construction