Hard Preferred Equity
Acquisition
Hard Preferred Equity
Basic Terms: NYMT’s investment must meet the general requirements as noted in its Investment Focus.
| Investment Amount | +$5.0 million |
| Investment Size | +7.5% of property value |
| Geographic Focus | National (Conventional Apartments, Build for Rent (SFR), Age-Restricted) |
| Accrued Return | 10.5% - 12.0% |
| Required Distribution | 5.0% |
| Surplus Cash Flow | 8.0% initially, increases over term |
| Minimum DSCR Constraint | 1.05x (using fixed rate Senior amortizing payment + Required Distribution) |
| Maximum LTV Constraint | 90% (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 |
| Senior Interest Rate Cap | 1.00x DSCR(using fixed rate Senior amortizing payment + Required Distribution) |
General Characteristics
NYMT’s ‘Hard Preferred Equity’ investment structure has the following characteristics:
- NYMT’s position in the capital stack is senior to the common equity and subordinate to the Senior loan
- During the term of the investment, Surplus Cash Flow is distributed to NYMT with excess distributed to the sponsor
- 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 carve-out guarantees of a similar nature to Senior loan obligations
- Failure of the sponsor to make the Required Distribution results in NYMT stepping into the management of the company