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Equity
Loans – Similar to a mezzanine loan, an equity loan is a
high-leverage loan secured by the entity that owns the
property and is typically made on a construction or
value-added project. Equity lenders will lend up to 95% (and
in some cases more) of the project cost behind a 1st TD. The
property owner or developer will fund the balance of the
project costs. In return for the equity loan lenders
typically require a preferred return of 12 to 15% on their
cash in the project plus a participation in the profits of
it. Each project is different but typical profit
participation ranges from 30% to 50%.
Example:
A real estate developer has plans to build a class A retail
center in a dominant location. The developer has a large
enough net worth to obtain a loan to finance the project but
their liquidity is low. In fact, it is so low that a
mezzanine loan would require most of their remaining
liquidity. Rather than lose the project to another buyer
they would obtain an equity loan to finance the majority of
the equity requirement.
If you
require additional information, or would like to speak
to one of our commercial financing specialists, please call
us at 888.488.3807 or
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