Mezzanine finance - development opportunity

[Yishi Zuo]

Hi folks -

I'm new to BP and real estate (but very familiar with finance and comfortable with early-stage risk in general - I come from the tech venture world).

I'm considering making a small hybrid equity investment / loan to a developer building homes. He has acquired the land, gotten the permitting, has construction financing lined up but needs ~20% cash equity / home.

I know very little about his particular real estate market, and I've never built anything myself. Even if I was the senior lender for one of the new developments, in a downside scenario I wouldn't know what to do with the land / the half-finished or finished (but unsale-able for whatever reason) inventory.

Therefore - I don't want to invest / make a loan in the development JV itself - I would rather make a loan at the parent-co level where there is collateral in the form of completed properties that are generating rental cash flow - they do have mortgages on them. (Also, the developer is reasonably experienced + wealthy and has personally guaranteed some of the existing development projects - but wants to move away from that)

I'm also planning to get some equity in the JV / the broader development company (much less equity than if I were to be a pure equity investor of course). because I do think this could scale to 300-400 homes / year

Of note: These homes are modular in nature - so are faster to build and margins are projected to be attractive.

My questions for you all is:

Have any of you lent to development assets with cross-collateral from cashflowing properties like this? What are some things to pay attention to / negotiate?

Do you know of other opportunities like this? What terms do you think would be reasonable in your POV?

Thank you!

-Yishi