Marc goldstein, Building Capital Stacks in Today's Market

1. Capital Stacks
What Worked, What Didn’t
Covington Realty Partners

2. The Good

3. The Bad

4. The Ugly

5. One That Didn t Work
• Denver, CO high-rise apartment development
• Large deal size - $80M
• 65% construction loan
• 35% equity
• Option to add mezz financing up to 85% of
the capital stack
• Top of the market proforma rents

6. Apartment Development
120
100
80
Equity
60
Mezz Debt ‐ 14%
40
Construction Loan ‐ Libor
20 + 225
0
Capital Capital
Stack ‐W/O Stack ‐W/
Mezz Mezz

7. Denver, CO High Rise Apartment
Development
• Total capitalization - $80M
• 65% LTV construction loan due to size ($52M)
• Equity amount – $28M
• 3.25% debt interest rate w/o mezz (65% LTV)
• 5.77% blended interest rate w/mezz (85% LTV)
• Equity Multiple – 1.71 w/o mezz, 2.04 w/mezz
• Levered IRR – 17% w/o mezz, 22% w/mezz
• Yield on cost – 7.25% in either scenario
• Investor required return – 2.0 equity multiple, 20% IRR

8. One That Worked
• Single Tenant Triple Net Retail Portfolio
• Acquired in a DST structure
• 50% LTC CMBS permanent debt
• 50% bridge equity
• Approximately 2/3 investment grade, 1/3 sub-
investment grade

9. Retail Portfolio
Bridge Equity
CMBS ‐ 5% Fixed
Capital Stack

10. Retail Portfolio ‒ DST Structure
• Blended acquisition cap rate – 6.72%
• Closing costs – 3%
• Fees/syndication expenses – 10%
• Bridge equity funded at closing – 2.5%
• Interest rate on debt – 5%
• Levered return to investors – 6%