Preferred Equity Real Estate
Clopton Capital is a nationwide provider of preferred equity real estate for transactions in need of creative and higher capital stack financing. Preferred equity came about as a way to allow a lender to take a position in a properties finances when a traditional second lien debt position will not work. This structure is very similar to mezzanine financing, however there is typically not an inter-credit agreement with the 1st position lender and the preferred equity lender does not have traditional foreclosure rights. Instead they have contract remedies written into the operating agreement of the owning entity, that allows the preferred equity lender, most likely a private equity firm, to step into managing control of the entity and exercise their remedies.
Preferred Equity guidelines
- Starting at $1 million loan amounts and up
- Up to 10 years term
- Interest only payments
- All real estate asset classes considered
- nationwide geography
- Acquisitions, refinances, value-add, construction
- restructuring, value added, recapitalization, leveraged buyout
- no amortization interest payment for increased cash flow
- Alternative to Mezzanine loan, can be secured by preferred stock
- Better cost of capital than finding an equity investor
Clopton Capital is a nationwide commercial real estate capital company, mortgage brokerage, and mortgage banking firm. We specialize in raising attractive commercial mortgages, commercial bridge loans, subordinated structuring, and real estate private equity in the secondary market for transaction sizes ranges from $1 to $40 million. The commercial mortgage lenders at our company bring long lasting relationships with capital providers and private equity firms that give our clients deep insight into capital structure and superior execution. Real estate investors looking for subordinate lending or equity investment should call us directly at 866-647-1650 to speak to a banker today.
Examples of Preferred Equity Real Estate Deals
Example 1) A real estate company and borrower came to us looking to acquire a $37 million apartment building in Washington state. The sponsor had a value add acquisition plan that they intended to execute and was looking for a piece of preferred equity to round out their capital stack. We were able to structure an $8 million preferred equity piece from a private lender, that gave them a 75/25 equity funding split with a 4 year investment term. This allowed them to execute their business plan and conserve their own capital for other projects.
Example 2) A developer and investor came to us looking to get a higher cap stack position for a development venture that he was doing in New York. His bank debt financing would not allow secondary financing secured by the project collateral so he needed an alternative solution. We were able to structure a preferred equity piece with a private equity fund that got him up to 80% loan to cost, without triggering a problem with his first mortgage lender. The deal allowed the developer to construct the project and conserve his own capital to go towards other projects. Once the new real estate investment was completed, the ownership would be able to repay the subordination piece due to the higher property valuation.