Equity Capital & Investments
Equity is available in as many formats as "31 Flavors" has ice cream:
Real Estate Equity
None Voting, Votong
Seat on the Board, No Seat on the Board
It all comes down to the same purpose... to bridge the gap between available debt financing and the cost to build, buy, renovate, and develop your real estate projects; “The Capital Stack”
Grace Capital Group is pleased to offer both institutional and private capital for Real Estate projects enabling our Clients to make the best choice in capital structuring (real estate equity) for the following types of properties:
Residential & Commercial Land Developments
Residential Housing Developments
Valued Added Commercial Properties
Credit Tenant & Single Tenant Properties
Real estate capital/equity can be structured as either debt or as a cash investment. A debt/mezzanine structure is expensive financing with yields in the low to high teen range but it’s a cheap partner because there’s no profit participation; however, the added debt load can put a stress on the project’s lending ratios so debt/mezzanine capital works best on value added real estate. The alternative capital structure is a traditional cash investment which means you have a financial partner who expects to participate in the project profits.
Types of Capital Structures
Traditional equity investment into the ownership entity as a partner, member or stockholder. Investments are with qualified developers and operators in transactions where there is a significant opportunity for value creation or cash flow enhancement. The equity and preferred return will be distributed on a pari passu basis.
Preferred Equity is best suited for situations where the developer lacks the additional equity capital required to bridge the gap between debt and purchase or development cost. A Preferred Equity investment is typically structured so that the investor receives its investment plus a preferred return and a participation in profits to achieve their target IRR.
Mezzanine Debt provides developers with subordinate debt funding up to approximately 90% of the value of the property. This program is attractive to developers who want to retain a greater share of the profits. The first mortgage is typically straight debt and the second mortgage is the higher risk and higher yield instrument, which has either a higher coupon or exit fees. The lender may be the same for both debt instruments or could be two different lenders. This structure is particularly good for developers who want to retain 100% ownership.
Participating Debt leverages the property to 90% of the cost and as much as 80% of the stabilized value of the property, typically in a blended first and second mortgage structure. This type of structure has many of the characteristics as Mezzanine Debt, but typically there is only one lender.
The investor actually takes the ownership position and through a Development Agreement contracts the developer to build and manage the asset. The developer receives 25% to 30% of the profits. This is ideally suited for developers who have no cash equity of their own, young developers with an experienced background but just starting out on their own and for those developers who want to minimize risk.
Rate and terms are subject to change without notice.
Because of the complexities of structuring real estate equity, we recommend that you contact an Executive Team member. Link