RKM Capital has a comprehensive database of the programs of mezzanine and equity capital providers nationwide. Our database organizes available capital by providers’ preferred property type, geography, leverage level, term, type of security required and other differentiating factors.
Our wide-ranging knowledge of each provider’s program enables it to negotiate the best economic deal available and successfully. Equity can be structured in a variety of formats. Normally a preferred return of varying rates is applied based on the risk level of the transaction. After capital is returned, profit splits are based on different payback scenarios. Most typical is a waterfall scenario where the investor gets back a higher percentage of profits until a desired internal rate of return is achieved, then the ratios flip-flop in favor of the developer. Most investors have flexibility in structuring these transactions and equate an overall IRR with the risk level of the transaction.
Overall leverage can be as high as 100% of total financing. Clients frequently need a joint venture equity partner in order to meet their required capital needs. So, it is integral to the structured finance approach, that we use our extensive database to assist our clients to meet their financing goals. Our clients realize the significant added value when our firm advises on all components of a project’s capital structure.
Mezzanine financing can fill the gap between equity and senior debt. The key to a successful Mezzanine transaction is achieving the best blended cost of capital across the capital stack. Mezzanine debt is the level of debt between senior debt and equity. For example, the purchase of a $20MM property could be funded with a $14MM first mortgage and a $3MM mezzanine loan and $3MM of cash (equity) from the client, bringing the total leverage to 85% of the purchase price.