In distressed and opportunistic real estate, knowledge and understanding of capital structures is critical, and will determine if your clients trust you to advise them on their deals.
Below are some types of equity.
1. Hard Cash Equity.
The best for aligning interests between the sponsor and the lender(s).
Any client with senior debt coming due over the next 18 months is an advisory client.
2. Imputed Equity.
This is equity that is implied to be in the asset and this is typically due to owning the asset over time.
Reasons to do transactions without significant hard cash equity:
- Cash flow in the deal is strong.
- There is significant, legitimate imputed equity that is verifiable; the property has been owned for number of years.
- Sponsor is providing guarantees to back up the imputed equity. Perhaps cross collateralization of existing assets.
- Great upside; the greed factor.
3. Syndicated Equity.
Beware of sponsors who use only other people’s money.
Investors need to know where the money is coming from: Friends and family, institutional equity, or is it fully syndicated from folks they do not know. Here the incentives are not “aligned”.
SD Capital Group is a private commercial advisory firm that provides short-term commercial loans secured by all types of commercial real estate. With several years of combined experience, our capital partners have the knowledge to find creative solutions to the most problematic transactions. Whether you are in need of a time sensitive acquisition, construction funding or a bank workout, SD Capital Group can help, our team will respond immediately to your client's needs.