This is a brand new program offered by a direct lender.
This equity kicker can be used to top off a new commercial bank loan to 75% LTV for a purchase or refinance.
1. You are an investor and want to purchase a $3M office building but you don't want to put more than 25% down, $750,000. You shop different lenders and can get a great deal on financing but the lender wont lend more than 65% of the purchase price requiring a 35% down payment or $1,050,000, and the lender doesn't allow 2nd mortgages. You don't want to miss out on the great rate and terms so what do you do? You are short $300,000, $1,050,000 required minus $750,000 on hand.
In this scenario you can use the preferred equity program to make up the gap so you can qualify for the favorable financing and only be out of pocket the 25% you have plus closing costs.
2. You purchased a strip mall in 2004 for $2.6M and put down 25% ($650,000) taking out a first mortgage for $1,950,000 with a 10 year term. It is now 2014 and your balloon is coming due but you have a problem. Unfortunately during the great recession trough the value dropped to $2M but has rebounded to $2.5M but the value isn't high enough to cover the payoff on a refinance. Your bank won't do a refinance for more than 65% LTV ($2.5M x 65% = $1,625,000). The proceeds of the new loan won't be enough to cover your $1,950,000 existing mortgage. You are short $325,000 on the payoff and you barely survived the great recession and don't have the cash to bring in to cover the shortage plus the points and closing costs. Your bank won't allow a second and suggests that you find a partner to contribute $325,000 in cash in return for a partial ownership in the building. You go to family and friends but unfortunately they are in the same situation as you.
Fortunately for you, you find this preferred equity program and the investor agrees to cover the gap up to 75% of the current value. $2.5M x 75% = $1,875,000 minus $1,625,000 new loan amount = $250,000 equity investment. You are still short $75,000 but that is a much more manageable amount and sure beats defaulting on your balloon payment and getting sued for the deficiency.
This is a very unique program that isn't available anywhere else. Most preferred equity provider won't even look at deals smaller than $3M. For full details please email email@example.com.