Equity Finance

What is Mezzanine Finance?

• Equity finance involves raising funds from an investor in exchange for a share of the profits, often to achieve 100% funding of the deal.
• The investor(s) normally become shareholders in the SPV set up to own the development but may also charge an interest rate, depending on what has been negotiated.
• Equity finance normally involves the investor taking “preferred” equity, meaning that they are entitled to profits before the developer.
• Equity financing can be used to plug the gap between development finance and the total project costs where the developer has little or no equity contribution available. It can sometimes be placed alongside senior debt and mezzanine finance.
• Alternatively, equity can some times take the form of a Joint Venture where the investor will fund all/most of the total project for a much larger stake of the profits.
• Mezzanine lenders tend to be family offices, HNW individuals and Private Equity and other successful developers.

It’s the ideal solution for experienced developers who want to increase their return on their own capital

Key Benefits

• Up to 100% Funding: Minimise personal capital use to take on larger or multiple projects and boost returns.
• Shared Risk and Reward: The investor only get’s repaid from profits after secured debt, so they have a vested interest in seeing the project succeed.
• Access to Experience and Expertise: Equity investors are typically very experienced in property development and investment. This often gives you additional access to their knowledge and their extensive network of professionals

Who is Eligible?

Being an experienced developer is an absolute must, but Limited Companies, PLCs, Sole Traders, Private Individuals, SIPPS and Partnerships are all able to access equity. Investors will look at several factors when assessing suitability and price including:

• The developer’s level of experience and general financial stability
• Has the senior debt/development finance already been approved and what other funding obligations are in place
• The profitability of the scheme to make sure the risk matched the reward