Capital Spotlight – Highlighting featured capital investors. We regularly publish the detailed criteria of our most unique real estate capital sources.
Valencia Realty Capital is seeing increased deal flow and loan activity in the small-balance residential and commercial space, where loan sizes range from $1–10MM and value-add sponsors are more regularly sourcing strong off-market deals. These sponsors often run into the same obstacle: a bridge quote in hand, most of the equity raised, and a gap between the two. We recently connected with a sophisticated, on-balance-sheet lender built for that gap. It regularly lends 80% to 90% of cost, effectively supplying the equity a sponsor cannot, and treats that incremental leverage as equity-like risk: in exchange, it seeks a participation of 15–25% in the profits at sale or refinance. At lower leverage the capital prices like conventional bridge debt; the participation is simply the cost of stretching higher. For a sponsor who would rather share upside than lose the deal, it behaves more like a structured equity partner than a traditional lender, which is precisely why it solves a problem conventional debt cannot.
Key Preferred Equity Terms (Indicative)
| Term | Details |
| Typical Deal Size | $1MM – $10MM |
| Sizing | Up to 90% LTC, capped at up to 75% LTV on stabilized value |
| Pricing | ~SOFR + 450–550 bps up to roughly 80% LTC, rising toward SOFR + 700 bps as leverage approaches 90% LTC |
| Participation | 15–25% of the profits at sale or refinance, on leverage above 80% LTC |
| Term | 1–3 years, with up to four 6-month extensions |
| Origination Fees | Market-competitive, based on loan size, leverage, complexity, and timing |
| Exit Fees | 1.0%–2.0% at 80% LTC or less. Above 80% LTC, lender requires participation in the profits of the transaction, in lieu of a fixed exit fee, to meet a specific return threshold. |
| Recourse | Non-recourse with standard “bad boy” carve-outs; recourse structure available or required on higher-risk transactions |
| Lien Position | Senior only; secondary financing prohibited |
| Funding | Full funding with holdback; future-funding facility available for tenant improvements, leasing commissions, and rehabilitation |
| Closing Timeframe | Typically 30–45 days from LOI acceptance and receipt of deposits |
Targeted Deal Types & Underwriting Criteria
| Criteria | Details |
| Asset Types | Primarily multifamily, industrial, and retail; secondarily mixed-use, self-storage, manufactured housing, hospitality, office, and medical office. |
| Geography | Primary and secondary markets, with current focus across the Southeast, Midwest, and Northeast |
| Sizing Metric | Debt yields as low as ~7.0% considered for multifamily, subject to asset class and market |
| Cash Flow | Below 1.00x DSCR deals considered with support of a funded debt service reserve |
Common Scenarios
This facility is best suited to a sponsor who has identified a project at a strong basis on an asset with some, but limited, current cash flow, where the business plan calls for capital improvements and a change in management to lift cash flow and materially increase value. Typically these sponsors have already tested bank and conventional bridge capital and found their deal either too transitional for the banks or too small for the bridge market. They need to maximize loan proceeds, reduce the equity raise, and close with confidence. Common use cases include:
Closing the equity gap on a value-add acquisition: A sponsor has a deal under contract at a strong basis they believe in but is $500K–$2.0MM short on the equity raise. Rather than chase the last LP dollars or walk from the deal, they use this higher-leverage structure to close, trading a share of the value they create for certainty of execution.
Flexible structure on transitional or non-multifamily assets: A deal that banks see as too “messy” (heavy capex, transitional cash flow, mixed-use, or a complex story) and that conventional bridge funds see as too small at $1–10MM given that complexity. The lender’s institutional underwriting can structure around the business plan where others cannot get comfortable.
Speed-to-close requirement: A sponsor facing a seller deadline, a broken escrow, or a time-sensitive basis needs certainty and a fast close. The lender can typically move in 30–45 days from LOI acceptance and receipt of deposits.
Next Steps
If you have found a value-add deal at a basis you believe in, and the equity gap, not the opportunity, is what is holding you back, call Valencia. We will help you assess whether the deal fits this participating structure, model what the leverage and participation actually cost you against the upside you are creating, and get you a preliminary read on terms quickly.
If this capital source may be of interest, book a call to discuss a potential capital arrangement.
Read our last Capital Spotlight: “90% LTC Debt Fund Capital Targeting Horizontal Lot Developments”