There has been a lot of talk recently in the industry about so-called “Small Balance Equity”. What exactly is that referring to? Small Balance Equity encompasses the “middle-market” of equity, between around $500,000 checks, and $5,000,000 checks. Below that threshold is the wild-west of bootstrapped friends & family equity where there are few established rules, and above that threshold, the well established and highly standardized world of institutional equity.
In the middle lives Small Balance Equity. The players here are typically wealthy individuals, family offices and to a lesser but growing extent, new equity funds being created to fill growing demand. FinanceBoston has carved out a niche in this space in the past year, closing nearly a dozen deals for our clients. Areas and features of an SBE arrangement include:
- Coupon rate – what rate of return must be paid to an investor? Are there hurdles or waterfalls, or is it a fixed maximum coupon?
- Current pay or accruing until the end of the term?
- Investment term/duration – how long do you need the money?
- Any points or fees?
- Personal guaranty of the developer?
- Structure: do you want a common equity JV, or strictly passive/preferred investment
We have arranged SBE for our clients for acquiring raw land, pre-development, entitlement financing, and construction of condos and apartments. It is best executed when we also arrange the senior debt, as the equity and debt need to be on the same page and work seamlessly to fund your deal, on time and with the proper amount of dollars. Below is a simple schematic that we’ve employed on a ground up apartment deal recently, using round numbers for a $10 million dollar project. As you can see, the developer was able to achieve an attractive weighted average cost of capital and was able to build a large project with minimal dollars of his own. Give us a call today to see how a Small Balance Equity check could help fund your project.

FinanceBoston Provides Real Estate Capital and Advisory Services to Investors and Developers.
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