What's Your Investor Profile?

  Target Rate to Investors:

6-11%

Target LTV:

25-75%

Term: 

6-36 months

Risk:  

Least Aggressive

 Backed by secured interest in property behind Senior debt (Typically Bank Debt). Equity Debt can also be referred to as Mezzanine Debt. It is in 2nd position in order of payment priority. Once the project operator/sponsor pays senior debt and operating expenses, all income must go to pay the fixed amount to the lender. If the project operator/sponsor defaults on payments, the lender typically can quickly take control of the property. The senior debt and equity lenders will usually enter into an agreement called an inter-creditor agreement where they spell out what happens in a default. The Debt lender usually has a higher rate of return than senior debt but lower in equity. 

 Target Preferred Return: 

7-11% cash on cash

Target Total Preferred Return: 

10-17% 

Target Term: 

2-5yrs

Risk:   

Moderate

 Preferred Equity investors are entitled to repayment before the Equity partners and project manager/sponsor is paid. Preferred Equity is structured differently in 1 or 2 parts, but serves the same purpose as Equity Debt. Ground Control Equity can offer the first part in preferred equity as “fixed” or “hard” return to a specific maturity date (1-4 years) then it will switch to an “unfixed” or “soft” return which will more likely to include some financial upside if and when the property performs well. The Rate of return for “hard” preferred equity is similar or slightly better than equity debt. “Soft” Preferred Equity returns can be substantially better. 

Target Annual Return:

8-12% cash on cash

Target Internal Rate of Return: 

12-18% 

Target Term: 

2-5 years

Risk: 

Aggressive

 Common Equity investors are typically a member interest in an LLC or Joint Venture partnership and/or sponsor or manager. This party will be paid after senior debt, Equity debt and expenses are paid if those investors exist in the same property investment. However, they will participate in uncapped upside when/if income property performs well. Common Equity investments carry the greatest risk, because investment agreements entitle every other tranche of capital to be repaid before common equity holders. However, if the property does well common equity investors usually have no cap on their potential returns. In real estate, equity is typically structured so that all investors earn a preferred return until they hit a certain annual return hurdle (i.e. 7%) After that the sponsor

or developer will earn a disproportionate

share of the profits (i.e. 40% of all the

remaining profit etc.)