Commercial Equity is money that is coming to the closing table that is NOT debt, but an investment in the deal by someone looking for a return of a mutually agreed upon amount. Equity is often the only way to cover the gap between what a borrower has into a project and what a lender is willing to lend. So if a borrower has a loan approved for 70% of the cost of the deal, and he/she has 15% to put into the deal, there is a gap of 15% to fill in the “Capital Stack” which is typically filled by either mezzanine financing (second mortgages essentially) or increasingly by equity.
WE HAVE PLENTY OF EQUITY AVAILABLE! BOTH INSTITUTIONAL EQUITY AND OUR OWN PRIVATE EQUITY SOURCES. One of our borrowers has $20 Million he is looking to deploy, another has $40 Million, another $5 Million and ALL are looking for projects to put their money into.
That means we have the sources and resources to finish the capital stack and bring the deal to fruition. Whether it is a deal that already has cash flow or a construction project, we have the ability to get it done…in fact, we may be the very best option. There are 2 main types of equity:
JV Equity-this is equity that comes in as a partner on the deal, They typically come in “pari-passu” meaning they take ownership in the deal to the percent that they have put in the deal. So if they are putting in 30% of the equity, they will own 30% of the project and the main borrower will own the other 70% and the equity investor will share in the profits and the returns in the same percentages as there ownership.
Preferred Equity- commonly referred to as “pref eq”, is an increasingly popular option. In this case, the equity partner does NOT typically get ownership of the project but instead gets a preferred rate of return. Typically in the mid-teens. The cash flow on the project (also called the “waterfall”) goes first to the mortgage, then to the preferred equity partner and only then to the sponsor or main borrower. The preferred equity partner gets their money before the sponsor but the sponsor keeps his ownership.
Which one works better will depend on the deal and so analyzing these deals becomes very important. WE WILL REVIEW ALL DEALS FOR FREE AND TYPICALLY GIVE YOU FEED BACK IN LESS THAN 72 HOURS. With literally BILLIONS in capital available to us through our lender partners, we can help bring a structure that works to most deals. So if you have a commercial purchase or a project that needs funding, give us a call. I will analyze it quickly and let you know what we can do-ALL FREE OF CHARGE. SO give me a call TODAY at 512-650-8630 or get started by completing the form .