How to Structure Equity / Credit Partners

Question

Hi everyone,

If any one out there can give me some advice on setting up a deal with equity / credit partners  that would be extremely helpful. I have an off-market commercial multi-family (15 units) and I have 3 investors that said they would like to invest. I know I will need at least 1 credit partner to apply for the loan, but how is everyone's % handled?

I would love advice from someone that's already structured one successfully instead of theories on how it should be done.

Adam Bontrager · Answer

@Emilio Basa

Typically with a multifamily deal will have a credit partner to provide the majority of the funding.  The equity portion is typically broken down and divided between a limited and a general partner.  The general partner is usually the one who is actually operating the project and has the greatest risk but then also has the greatest opportunity for profits if the project does well.

The credit partner (typically a traditional bank/loan product) has first priority and senior claims to cash flows from the property.

After the credit partner has been paid, the limited partner is generally paid next.

The general partner is paid last and typically receives a larger share of the cash flows after the limited partner has received a predetermined rate of return.

This is the structure we've used on our multifamily deals so far.  I'd be happy to discuss this with you further if you have additional questions.

Brad Simmons · Answer

I haven't structured the deals, but have seen them completed that provide 5% to the credit partner, 20% to the syndicator, 5% to people that bring in contacts that provide more capital, 70% to those that provide capital.

Emilio Basa · Answer

Hi @Adam Bontrager,

Yes I would love to discuss this more with you. I already have my credit partner, 2 limited partners and I would be the general partner. I'll PM you.