Capital Spotlight – Highlighting featured capital investors. We regularly publish the detailed criteria of our most unique real estate capital sources.
Established nearly a decade ago, this innovative CRE fund is strategically designed to bridge the investment gap for projects requiring preferred equity checks between $2.5 million and $7.5 million. By focusing on value-add, construction-completion, ground-up construction, and stabilized deals across the U.S. (excluding California), this fund offers a compelling alternative to traditional financing sources.
Tailored Investment Strategy
This fund’s approach to preferred equity investments is both targeted and flexible, catering to a range of multifamily (and selectively, industrial) project types:
- Value-Add Projects: Enhancing existing properties to optimize cashflows and increase value.
- Construction Completion: Financing development projects which have been stalled and require an additional $2.5MM-$5MM to complete and stabilize the asset.
- Stabilized Deals: Investing in fully leased properties to maintain stable cash flow.
Geographical Focus and Criteria
While the fund invests nationwide, it specifically excludes California, targeting resilient markets across the U.S. It adheres to strict investment criteria to manage risk and ensure solid returns:
- Maximum Loan-to-Cost (LTC): Typically up to mid-80s on LTC, ensuring substantial project leverage, and allowing the sponsor a less intensive and exhaustive equity raise.
- Property Age Preference: Focus on buildings constructed 1990 and newer to mitigate capex risks associated with older vintages.
Competitive Pricing and Terms
The fund offers competitive pricing, reflecting the risk and return profiles of different project types:
- Stabilized Assets: Interest rates range from 13%-15%, half current and half accrued (can be more flexible on current/accrued breakdown depending on projects’ needs)
- Value-Add and Construction Projects: Rates typically range from 16% to 18%, with 8% current interest and the balance accruing.
Investment terms range from 18 months to 5 years, with a sweet spot of 2 to 4 years, catering to both short and medium-term project horizons.
Flexibility in Financing Partners
The fund can structure their preferred equity creatively to sit behind traditionally less expensive senior financing, including:
- Agency Lenders
- HUD
- Bank Financing
Where Can They Get Most Aggressive?
Understanding and managing lease-up risk is central to the fund’s strategy:
- Lease-Up Risk: The principals of this firm have a longstanding background as a developer/operator in several markets across the US, and thus have strong experience evaluating lease-up risk for ground-up, mid-construction, and value-add deal profiles.
Conclusion
For real estate developers seeking creative and flexible preferred equity solutions, this CRE fund offers a unique blend of strategic focus, competitive pricing, and robust risk management. By bridging the investment gap for value-add and construction projects, the fund stands out as a pivotal partner in achieving ambitious real estate goals. Explore the opportunities with this innovative fund and unlock new potentials in your CRE ventures.
| Capital Type’s Offered | Preferred Equity |
| Geography | Nationwide – Excluding California. (Primary focus on TX, SE, Midwest, Boston, and other resilient NE markets). |
| Property Types | Multifamily and Industrial |
| Use of Funds | Uses of funds can be flexible; will fund acquisition, construction, Capex, and Recaps, etc. |
| Construction | Ground Up Construction, Construction-Completion, Heavy Value-Add, Light Value-add |
| 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, and typically 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; Typically will lean on the Senior guarantee requirements. |
| Check Size | $2.5MM-7.5MM |
| Sizing | Construction: 75-85% LTC; Acquisition / Recap: 65 – 75% LTV / 7.5-8.0% stabilized debt yield |
| 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. |
| Interest Rate / Returns | (1) Construction / Construction-Completion: 16% – 18% (~8% current, balance accruing), (2) Stabilized / Light Value-Add: 13% – 16% (half current, half accrued). |
| Origination Fees | 1.0%-2.0% in, 1.0% out |
| Payment Structure | Partially current, partially accrued |
| Term | Typically looking to match the term of the senior lender |
| Prepayment Structure | 1.3x – 1.7x minimum multiple |
| Underwriting Requirements |
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| Collateral Requirements (If sub-debt) | UCC Lien, Pledge of equity |
| Intercreditor Requirements | Case-by-case |
| Deposits | Market standard deposit required upon signing of term sheet to fund appraisal, environmental, title, legal. |
| Closing Time Frame | 30 – 60 days, 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.