Capital Spotlight – Highlighting featured capital investors. We regularly publish the detailed criteria of our most unique real estate capital sources.
Participating Preferred Equity Capital for Existing Assets
The investor is an institutional investment fund manager. Their platform specializes in preferred equity investments helping experienced sponsors fill their capital stacks on acquisitions. The investor will provide up to 2/3 of the equity capital required on a deal. Their cost of capital can be substantially cheaper from an IRR standpoint than the alternative — raising common equity. This capital is best utilized for value-add, existing assets.
| Capital Type | Participating Preferred Equity for Existing Assets |
| Geography | United States and Canada. Markets would be considered based on the opportunity vis a vis the Sponsor’s complementary experience and track record. |
| Property Types | Will consider most income-producing property types including industrial, multifamily, self-storage, retail, office, manufactured housing, parking, and others. Will not consider hospitality or high-acuity senior housing. |
| Uses of Funds | Acquisition of property, capital expenditures, financing and closing costs. Will not consider recapitalizations, heavy repositioning or development. |
| Sponsorship | Looking for sponsors who have an organizational capacity to meet institutional-quality reporting requirements, and have a proven ability to execute on business plans. Sponsors will need a track record and a reasonably adequate financial statement. Most of their sponsors are in “growth mode” and looking to rapidly grow their portfolio in a cost-efficient manner. |
| Recourse | Non-recourse |
| Check Size | $2,000,000 – $20,000,000 |
| Loan to Value | Up to 90% combined loan to cost. |
| Targeted Return | 14-16% IRR over a 5-year period |
| Lender Fees | 1% |
| Payment Structure | ~8.5% current pay rate plus 10-35% equity participation to meet the Targeted Return based on projections. |
| Duration | Up to 10 years |
| Prepayment Structure | None |
| Underwriting Requirements | Existing, cash flowing assets |
| Intercreditor Requirements | Very flexible. Will invest in second position behind fixed-rate institutional senior debt that is up to 70% of the capital stack. No intercreditor requirements. Compatible with banks, Fannie Mae, Freddie Mac, as well as conduit lenders. No lien, hard pay or term to maturity. Does not like floating-rate debt. |
| Approval Rights | Approval of major decisions such as sale, refinance, annual operating budget; capex renovation plan, etc. |
| Deposits | Generally, $10,000 – $20,000 in order to cover legal and travel. Relies on third party reports from senior lender. |
| Closing Time Frame | 21 – 45 Days |
If this capital source is of interest, book a call to discuss a potential capital arrangement.