| Common
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 are typically
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. |
