Capital Spotlight – Highlighting featured capital investors. We regularly publish the detailed criteria of our most unique real estate capital sources.
$1-5 Million Participating Preferred Equity Investor
The investor is an investment fund manager, backed by an institutional real estate investment manager LP on the US East Coast. The fund specializes in small balance opportunistic preferred equity investments, which fills a market void for these smaller check sizes. While the pricing may look steep at first glance, it can be substantially cheaper from an IRR standpoint than raising common equity. This capital is best utilized for projects with heavy value creation, including ground up projects.
|Capital Type||Small Balance Participating Preferred Equity|
|Geography||Primary and secondary markets in the contiguous United States.|
Tertiary markets would be considered only if there is a very compelling reason and Sponsor has complementary track record.
|Property Types||Will consider most property types including warehouse, multifamily, self storage hospitality, & SFR. However, office, and for-sale residential asset classes are not in favor.|
|Uses of Funds||Acquisition, construction, soft costs, capital expenditures, and closing costs.|
|Sponsorship||Underwriting is mostly experience-based. Sponsors will need a track record and a reasonably adequate financial statement. Many of their borrowers are real estate entrepreneurs who have recently exited employment with institutional quality sponsors. Additionally, they work best with sponsors with a focused strategy who are looking to scale up beyond friends & family capital raises.|
|Check Size||$1,000,000 – $5,000,000 (will stretch to $6.5 million for select deals)|
|Loan to Value||Up to 90% combined loan to cost for strongest deals. Additional collateral may be considered to boost proceeds.|
|Targeted Return||16-19% IRR|
|Payment Structure||5-10% current pay rate|
The balance of the Targeted Return is either accrued to a fixed IRR, or there is a participation of net profits to solve for the projected IRR.
|Duration||Three years, extendable to five years.|
|Prepayment Structure||Usually, 12 months yield maintenance based on the current payment rate.|
Payoff of profits participation is based on appraisal.
|Underwriting Requirements||Preference is for existing value-add assets but will consider ground up development.|
In either case, this works best for heavy value add deals with a gross IRR north of 20% over a 3-5 year period.
|Intercreditor Requirements||Flexible. Will consider investing behind private lenders but prefers institutional senior debt under 75% of the capital stack. No intercreditor requirements.|
|Deposits||Generally $15,000 in order to cover legal travel. Relies on third party reports from senior lender.|
|Closing Time Frame||14 – 45 Days|
If this capital source is of interest, book a call to discuss a potential capital arrangement.