Soft Preferred Equity


Basic Terms: NYMT's investment must meet the general requirements as noted in its Investment Focus.

Investment Amount +$3.5 million
Investment Size +7.5%
Accrued Return 10.5% - 12.0%
Required Distribution N/A
Surplus Cash Flow 8.0% initially, increases over term
Minimum DSCR Constraint 1.05x (using fixed rate Senior amortizing payment + 6.0% of Investment Amount)
Maximum LTV Constraint 90% (Senior + Investment Amount)
Investment Term <12 years (typically co-terminus with Senior maturity)
Origination Fee 2.0%
Minimum Return Multiple 1.5x
Senior Loan Term 5+ years
Senior Interest Rate Cap 1.00x DSCR (using fixed rate Senior amortizing payment + 6.0% of Investment Amount)
Drag to Market Following 2nd anniversary of the Investment

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General Characteristics

NYMT's 'Soft 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 sponso
    • 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
  • NYMT's investment does not have a performance measure for stepping into the management of the company
    • NYMT has a right to Drag to Market after 2 years
    • NYMT requires an Upfront Fee to cover the 2-year blackout period for the Drag to Market
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