Capital Spotlight – Highlighting featured capital investors. We regularly publish the detailed criteria of our most unique real estate capital sources.

In the shifting landscape of real estate finance, especially within the workforce housing and heavy-value-add multifamily sectors, private equity funds have become increasingly critical. Traditional financing sources have tightened, prompting investors to seek creative and nimble capital partners. The era of relying on bank financing up to 60% Loan-to-Value (LTV) and topping it off with preferred equity up to 85%-90% LTV is largely over. Without strong, long-standing relationships with banks—and often without significant deposits— securing permanent debt even for stabilized assets has become a significant challenge. This has created a substantial gap in the market, particularly for sponsors needing significant capital.

At Valencia Realty Capital (VRC), we’ve noticed a trend: as competition for construction and heavy-value-add multifamily deals has declined, competition among preferred equity sources and LP equity funds for light-value-add multifamily projects has risen. This shift has widened the gap between what sponsors need and what investment funds are willing to risk. To navigate this evolving landscape, VRC has been forging new dependable capital relationships, aiming to fill this gap with creative equity solutions. Whether through preferred equity, LP equity, or a combination of both, our goal is to provide sponsors with the capital they need to succeed.

Our latest capital spotlight features a new discretionary fund based in California, offering flexible capital placement structures tailored to workforce housing assets. This fund is particularly notable for its competitive preferred equity terms and JV equity for select opportunities. Leveraging their experience as sponsors in this sector, they have the flexibility to structure high-leverage preferred equity up to 85% LTC/V or an 80/20 LP investment. Their goal is to provide capital solutions that work for both the deal, the Sponsorship teams, and the communities they are investing in. The fund targets deals nationwide, with a preference for the Southeast and Midwest, and requires strong sponsorship. They are open to Co-GP relationships and offer LP equity checks north of $10MM.

This fund’s ability to provide creative financing solutions lower in the capital stack for ground-up construction and heavy value-add deals makes them a valuable partner for any workforce housing sponsor looking to expand or recapitalize their portfolio. By focusing on specific niches and avoiding the competitive fray of light-value-add multifamily, this fund offers a strategic advantage in today’s market. VRC remains committed to connecting sponsors with the right capital partners to unlock growth and navigate the complexities of the current real estate finance landscape.

Capital TypesPreferred, LP, and Co-GP Equity
Geography / Focus AreasNationwide, Focused on the top 50 MSAs. Targeting the Southeast, Midwest, and TX (excluding Houston).
Property TypesAffordable housing, a minimum of 50% of the units must be affordable to households earning 80% of area median Income.
Use of FundsAcquisition, New Construction, Capital Improvements, and Recapitalization
ConstructionGround-Up, Heavy Value-Add, Light Value-Add
Sponsorship RequirementsLooking for experienced Sponsorship teams with local expertise
Check Size$10MM + (Ideally $20MM+)
LeverageMaximum LTV/C of 85% **Subject to significant value being added reconciling a feasible exit
Targeted Return14-17% **For preferred equity, specifically
Origination Fees (Preferred Equity Only)1 in, 1 out. 1 for extensions.
Payment Structure (Preferred Equity Only)50% current pay. Flexible
Term24-36 months (for preferred equity)
Min. Multiple1.35X
Underwriting Requirements5-6.5% required going in cap rates for stabilized acquisitions. 7.0% un-trended yield on cost for heavy value-add and ground up development deals.
Closing Time FrameTerm sheets typically issued after 2-3 weeks of initial due diligence and analysis. Closings typically occur in 21-45 days from signing of a term sheet.
Pop. Density Requirement250K population required within a 5-mile radius.
Vintage Requirement1980s+ vintage

 

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.