|
Types of Capital Structures |
|
Equity: |
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: |
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: |
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: |
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. |
|
Development Agreement: |
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. |
