Ground Up Preferred Equity

Ground Up Prefferred Equity

Ground Up Preferred Equity

Basic Terms: NYMT’s investment must meet the general requirements as noted in its Investment Focus.
Investment Amount +$4.0 million
Investment Size +7.5% of property value
Accrued Return 12.0% - 14.0%
Required Distribution 6.0%, typically reserved to cover distributions through lease up
Surplus Cash Flow For shorter term deals, NYMT uses any excess to pay its Accrued Return
Minimum DSCR Constraint 1.10x(using fixed rate Senior amortizing payment + Required Distribution)
Maximum LTC Constraint 80% (Senior + Investment Amount)
Investment Term <12 years (typically co-terminus with Senior maturity)
Origination Fee 1.0%
Minimum Return Multiple 1.5x
Senior Loan Term 5+ years (inclusive of extensions)
Senior Interest Rate Cap 1.00x DSCR (using fixed rate Senior amortizing payment + Required Distribution)
Recourse Obligation Completion Guaranty & Standard Carve-Outs

General Characteristics

NYMT’s ‘Ground Up Preferred Equity’ investment structure has the following characteristics:

  • NYMT’s position in the capital stack is subordinate to the Senior loan and senior to the common equity
    • During the term of the investment, Surplus Cash Flow is distributed to NYMT
    • At a capital event, NYMT’s investment and any Accrued Return is distributed to NYMT with excess distributed to the sponsor
    • A Minimum Return Multiple must be met at exit for NYMT’s Investment
  • NYMT uses either a preferred equity investment or mezzanine financing depending on requirements of the sponsor and/or the Senior Lender
    • Preferred Equity – NYMT directly invests into an LLC as a member with governing terms provided in an operating agreement
    • Mezzanine Financing – NYMT secures a pledge of equity interests of an LLC with governing terms in a mezzanine loan agreement
  • NYMT’s investment is nonrecourse except for:
    • A completion guarantee on the construction and completion of the project
    • Carve-out guarantees of a similar nature to what is found in Senior loan obligations
  • NYMT’s investment has a Distribution Reserve to cover minimum cash flow requirements during construction and lease up
    • Failure of the Sponsor to make the Required Distribution results in NYMT stepping into the management of the company
    • Surplus Cash Flow in shorter term construction financing is distributed to NYMT with excess used to pay NYMT’s accrued return