In this Insights Series Post we highlight a new credit enhancement program in the market that was set up to help emerging sponsors or groups that do not meet lender liquidity or net worth requirements. Specifically, the program is set up to provide co-guaranties on non-recourse loans for borrowers on a fee basis. The newly established company pledges its assets / liquidity alongside the borrower through an entity or warm-body and co-signs on the loan for a fee. Here are the details:
Program Overview
- Acquisitions, Refinances, Developments, and Value-Add / Adaptive Re-use Projects
- $5MM – $100MM in financing capacity
- Up to 80% LTV
- Loan Term up to 7 Years
- All Property Types Considered
- Nationwide
- Guarantees Provided – Traditional Non-Recourse “Bad Boy” Carveouts and Completion
Fees & Structure
- Origination Fee 0.5% – 2.0%
- Annual Maintenance Fee 0.25% – 2.0%
- Success Fee 0% – 25% Profit Participation
Who is this program a good fit for?
The program was primarily set up to assist high quality emerging sponsors secure financing for their commercial real estate project. Sponsors that have a track record of success but may not have liquidity and net worth requirements are good candidates for this program.
Why choose this program over alternative co-GP options?
The main benefit to this program is that there is smaller profit participation compared to typical co-GP arrangements. In this program, the co-guarantor earns a fee for providing the guarantees/credit enhancement and a modest or no success fee.
What else should be considered for this program?
Expect the co-GP to closely monitor the project and also play a more active role in the operations. The co-GP will take on contingent liabilities so they will be concerned with not triggering any recourse under the guarantees.