How to Structure Deals
How Does Commercial Real Estate Valuation Work?
Commercial Real Estate Valuation: Methods, Metrics, and What Sponsors Need to Know By Adam Gower Ph.D. Commercial real estate valuation primarily uses the income approach: Value = Net Operating Income (NOI) ÷ Cap Rate. For a property generating $500,000 NOI in a 5% cap rate market, value equals $10 million. The three standard approaches are…
Read MoreYour Ultimate Guide to Real Estate Waterfalls
Your Ultimate Guide to Real Estate Waterfalls By Adam Gower Ph.D. A real estate waterfall is a tiered structure for distributing investment profits between sponsors (GPs) and investors (LPs). Waterfalls typically include return of capital, a preferred return (6–10%), and profit splits that increase sponsor share at higher return thresholds. The structure aligns incentives so…
Read MoreComplete Guide to the Real Estate Capital Stack: Structure, Risk, and Returns
Complete Guide to the Real Estate Capital Stack: Structure, Risk, and Returns By Adam Gower Ph.D. The capital stack is the layered structure of financing used to fund a real estate deal, organized from lowest risk (senior debt) to highest risk (common equity). A typical ‘full’ capital stack might include senior debt (50-70%), mezzanine debt…
Read MorePreferred Equity or Mezzanine Debt: What’s Right for You?
Preferred Equity or Mezzanine Debt: What’s Right for Your Deal? By Adam Gower Ph.D. Preferred equity and mezzanine debt both fill the gap between senior debt and common equity, but they differ in legal structure, cost, and lender acceptance. Mezzanine debt typically costs 12-18% with foreclosure rights; preferred equity costs 13-20% but sits in the…
Read MoreCap Rates: Ultimate Real Estate Investing Guide
Cap Rates: Ultimate Real Estate Investing Guide By Adam Gower Ph.D. A cap rate (capitalization rate) in real estate equals Net Operating Income divided by property value: Cap Rate = NOI ÷ Value. A property generating $500,000 NOI purchased for $10 million has a 5% cap rate. Current market cap rates range from 4.5-6.5% for…
Read MoreHow to Finance a Real Estate Development Project
How to Finance a Real Estate Development Project By Adam Gower Ph.D. Real Estate Development Financing: The Complete Guide for Sponsors Real estate development financing is the capital used to fund ground-up construction or major redevelopment projects. The typical development capital stack includes construction loans (55-65% LTC), mezzanine debt or preferred equity (15-25%), and common…
Read MorePreferred Equity in Real Estate: What Sponsors Need to Know
Preferred Equity in Real Estate: What Sponsors Need to Know By Adam Gower Ph.D. Preferred equity in real estate is an investment that sits between senior debt and common equity in the capital stack, receiving priority distributions (typically 10-15% returns) before common equity but after all debt obligations. Unlike mezzanine debt, preferred equity is structured…
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