In an attempt to win more deals in the competitive multifamily debt and equity sectors, capital providers are launching new platforms. These launches will involve debt providers establishing equity divisions — or vice versa, equity groups creating debt platforms.
Additionally, select debt funds may look to provide both the debt and equity for a development project.
Eastern Union Funding expands its debt service to include an equity division, which comprises high net worth individuals looking to contribute capital as limited partners. The equity division’s primary focus will be on multifamily investments, as the firm cites demand for rental acquisitions loans being at an all-time high.
The division represents a capital-raising shift for Eastern, as the firm previously sourced only institutional money. This new platform will introduce investors to clients looking to invest as little as $50,000 up to several million dollars.
Sub-$2 million equity slices are often difficult to obtain for multifamily buyers with a focus on smaller properties or assets in tertiary and secondary markets — where transactions require a smaller equity investment, due to the sales price, in comparison to larger metros.
To illustrate the demand for smaller equity chunks, Eastern Union points to the growing crowdfunding sector. The firm says it is meeting the same demand as this financing avenue, but unlike crowdfunding it introduces investors to sponsors directly and does not invest on a sponsor’s behalf.
Typically, a crowdfunding platform already has deals in place for which an investor can contribute capital towards.
For instance, recently launched CityFunders, which focuses only on New York City real estate deals, initially presents investors with the chance to provide capital towards the acquisition of a mixed-use property in Manhattan or a newly built, high-rise apartment in Long Island.
The move to include an equity division could be one way for Eastern to win more debt deals — basically, an “if you use our debt then we’ll connect you to smaller sources of equity” situation.
At least two equity sources that were unable to achieve midteens yields via investments in ground-up deals — Related Fund Management and PIMCO — have done the opposite of Eastern Union, launching higher-leverage debt platforms.