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As the real estate capital stack has expanded to allow higher leverage to property owners and operators, the placement of debt has added room for equity players. By far the most risky portion of a capital stack, the equity investor also stands to gain the most in a successful deal. Equity financing can be quite challenging, therefore only experienced players should be buying this type of product.
Buyers and holders of equity stakes in real estate assets, as well as a real estate business concern are stakeholders willing to give experienced deal sponsors the extra capital needed to ensure the success of a project or asset. The level of return an equity partner asks for in a deal will surely be based on how much risk that investor will assume. It is critical that a borrower clearly understand the terms of taking on an equity partner for a project or particular real estate transaction.
EQUITY FINANCING CAN COMPLEMENT DEBT POSITIONS: Equity partners offer an alternative to debt, but will often maintain the right to step in and assume control of an asset in the event of a debt default.The parties to an equity investment deal must agree on these terms ahead of an investment transaction. Equity partners can also serve to strengthen the debt portion of a deal. For instance, an equity partner with an excellent credit rating could help the borrower/property owner secure favorable debt financing terms.
Be sure to ask us about how we can help structure debt and equity financing terms to maximize returns for all parties involved.