Mixed Use Construction with Preferred Equity

The Problem

A rapidly growing developer had obtained a development site off-market, at a highly favorable price, subject to permitting. The developer obtained approvals with permits to be obtained shortly thereafter, and was prepared to construct the building, but lacked the necessary capital. Further, the seller could walk from the deal if the developer was unable to close, and the substantial value created by the developer’s permitting efforts would revert to the seller.

The Approach

Our company was hired to obtain maximum senior debt financing with a permanent component to lock in the excellent rates at the time. The mandate included arranging a preferred equity joint venture to provide the bulk of the equity, without taking a bulk of the profits.

The Results

The firm was able to obtain a favorable construction to permanent execution, while slotting in fixed rate preferred equity with the sponsor maintaining all upside over and above a pre-determined coupon. The developer was able to close on time. As an added benefit, the senior financing featured an earn-out provision, to buy out the preferred investor at stabilization.