As a boutique real estate investment banking firm, GenX Capital Partners closes on more than $75 million to $100 million a year or more in debt/equity placement and investment using the traditional platform of 70/30 to 80/20 (occasionally 85/15 with a “stretch senior”) under typical debt/equity structures for all asset classes.
However, once COVID hit, those ratios inverted due to the debt funds, private equity firms and Family Office partners pulling back the financing reigns, making it nearly impossible for developers to get deals done without pouring in more personal capital and watching their cash-on-cash and IRR ratios drop substantially. That is, until now.
Enter GenX Capital Partner’s 99-year hybrid financing platform, a game changer for how they finance deals moving forward. They can now combine their ground lease financing component with traditional debt financing, driving up leverage for the developer to an astounding 95%, while saving them on the need for expensive equity partners.
Think about this for a moment; the real estate asset itself generates a 15 to 20% or more Return on Equity (ROE) per annum while the land never generates more than a 4 to 5% ROE, if you’re lucky. The dirt is simply a placeholder for the building and nothing more. By separating the two, you can maximize your overall returns without being pulled down by the low risk, low return, land component. Under GenX Capital’s financing structure you take what was a 4 to 5% ROE with the land, extract its cash value through a sale to their firm, reinvest these proceeds back into the higher revenue generating asset that’s earning 15% or more, pay the 4 to 5% ground lease rate while unlocking a 10% ROE differential that was hidden in the dirt. And this is all before you take into account the fact that you can write off these lease payments along with other deductible expenses and, in the process, further elevate cashflow and IRR projections.
Imagine having the ability to acquire or develop a $20 million property with only 5% equity at a blended rate of under 6%, all in? For lack of better word that’s insane and a complete game changer for how developers do deals moving forward.
Under this hybrid ground lease financing platform, GenX Capital Partners acquires the land at 30% of projected stabilized value (taking year four NOI). These funds now become part of the overall capital stack. GenX will then lease back the land to the developer at 4.25% to 5%, depending on asset class. Additionally, GenX Capital will bring the leasehold lender making it a “one stop shop”, financing both sides of the transaction. More importantly this ground lease is in full compliance and accepted by HUD, Fannie Mae, Freddie Mac and all major lending institutions, allowing for a future refinance or even a sale of the asset down the road.
In the example above, the developer eliminated the need to raise additional $5.1MM in expensive LP/Pref/Mezz financing and covered that difference at a 4.25% interest rate while jacking up IRR’s, expediting their development timeline since they are not bogged down raising capital, all while making the loan safer for the bank from a DSCR (Debt Service Coverage Ratio), as it typically increases 25 BP to 50 BP over that of traditional structure. After you add in their reasonably priced acquisition/construction debt, developers typically see a blended rate of 5.5 to 5.9% “all in,” eliminating the need for expensive LP equity and partners in general.
This can be done for ALL asset classes, for ground up and “Value Add” acquisition projects with typical check sizes as low as $2 million and up to $200 million in some cases. This is a great financing mechanism for retail, office, hospitality, multi-family and industrial development and acquisition deals. Imagine now having the ammunition to go after bigger deals with more capital at your disposal and no need for additional partners or equity? High seven-figure and eight-figure deals are now in the realm of possibility, with the ability to move quickly and efficiently knowing the dollars will be there to close. Expanding your real estate portfolio has now become easier and the process for approval and funding incredibly less stringent and quicker than local banks. This is a game changer for sure.
“We are aggressively pursuing opportunities in Southern Maine and down the Eastern seaboard to Florida and over to the Mid-U.S. markets and Texas,” said Mark McClure, Managing Partner of GenX Capital Partners. “But due to the fact we are doing tens of millions of dollars of development in Southern Maine currently as a company, we are focused here at the moment, from lending and investing to personally developing.”
One of the many current projects that McClure and his partners Paula Wallem, Ronnie Goddard, Jeff Pollack and Moshe Miller are putting together is the development for The Mark at Cumberland Foreside, a high-end, 50-unit condo project that will come with top notch amenities, prime location and units with rooftop decks. McClure said he hopes to launch pre-sales the first of the year with more than 20% of units already spoken for from buyers as far away as Miami.
“The real estate market in New England is continuing to stay hot and based on our in depth research and market studies, we feel that this geographic segment and Southern Maine in particular will be this way for the next several years,” said McClure. “Obviously, our investment partners think this way as well, as we look to deploy more lending capital up here in New England under this hybrid ground lease financing platform while also developing real estate for our own account.”
Do you have a development project or asset you are looking to acquire but your down payment or equity reserves are minimal? GenX Capital Partners hybrid ground lease financing platform could have your solution. By combining their ground lease proceeds with their acquisition or construction loan, getting to 90 to 95% of the capital stack is very doable, allowing you to keep more of the deal in your pocket rather than in the hands of equity partners.
Contact Mark McClure at 305-507-6777 or Mark@GenXCP.com or to learn more about financing your project using GenX Capital Partners’ hybrid ground lease platform or to have them model out what it would look like based on your current structure.
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