Participating financing is a hybrid area specifically structured for each real estate transaction. It is a hybrid in that it takes the place of debt – either senior or secondary, but performs the function of equity. It provides high leverage for a transaction, often to 95% of cost, which then replaces most of the equity required while being debt on the collateral, not part of the ownership. The participating portion means that upon the payoff of this debt, a portion of the projects profits are paid to the Investor along with the original debt investment.
The participating debt structure is often less expensive to the developer, replacing equity requirements of 50% or greater of profits with debt participation that typically is in the 20% to 30% range. The trade off is that equity cannot foreclose on a project, but debt can. The lower cost but higher leverage issue is one best discussed with your Account Executive to determine what is available and best for the project.
Participating debt may be non-recourse and is dependent upon the project, borrower quality and experience. While nationwide in scope, most investments are limited to major population areas. All property types are considered, including land acquisition and development which is very often a good candidate for this type transaction.
For answers to your Participating loan or any other commercial real estate lending needs, please call us at 1.516.348.2380 or use this link to our CONTACT US page..