We can assist buyers with their investment goals by providing preferred equity for their projects. For example, suppose you have a lender offering 65% Loan to Value (LTV) and you have 15% to 25% equity. That leaves a gap of about 20% to 10% equity in your capital stack. You cannot get a 2nd position loan, because the primary lender won’t allow junior liens.
You can work with us to form a preferred equity investment to fill that gap. Preferred equity is paid before your common equity from the Net Operating Income (NOI). The benefit of using preferred equity is that there is no default when the NOI is insufficient to service the preferred equity. The yield accrues, just like compound interest, instead of triggering a default. This is very similar to interest reserves, but without the added cost when there is sufficient NOI.
Our preferred equity yield requirements are intended for “hairy” projects, usually turning around distressed properties that have unsteady or negative cash flow. When the project is completed and subsequently sold or refinanced, our preferred equity position is paid off before your common equity position receives distribution, just like a loan is paid off.
Contact us on our support page for more details.