1. Why is this product attractive?
Market-rate residential and mixed-use deals typically have an equity gap. The returns required for this fund are modest in comparison to market-rate equity from other sources.
2. What is the typical project?
The project can be new construction, substantial rehab, or an acquisition of an operating property. We will consider for-sale or rental projects. The fund seeks to invest in projects which will have a positive impact on an urban or older suburban neighborhood. The residential units are typically market-rate, with an affordable component (not related to the LIHTC).
3. What uses are permitted?
The project should be mostly residential, either rental or for-sale. Any commercial component should be relatively modest, and it should be pre-leased or master-leased by a bankable entity.
4. When does the money come into the deal?
The mezzanine debt funds at the start of construction. The investment term will vary depending on the project; for-sale projects will typically have a faster payback. The fund will also purchase federal Historic or New Markets credits to the extent they are available.
5. What are the returns and splits?
These are negotiated for each deal. The fund will usually have a preferred return in the low- to mid-teens. Any upside is split as needed to get the fund's total return to the mid-teens to low-twenties.
6. What are the developer requirements?
The developer must have sufficient net worth to support completion and lease-up guarantees. Environmental indemnification and a performance bond are usually required. Developer fees are usually deferred until conditions have been met for closing the permanent financing. The developer is usually required to keep real equity in the deal. |
