Re-Capitalizing in 2024!
With the continued onset of interest rates, insurance costs, required interest cap purchases and pricing of goods and services left over from the last 15 months, many GPs/Sponsors/Managers are trying to figure out how to re-capitalize until (i) cap rates decrease; and/or (ii) interest rates decrease (both of which will help multifamily economics). Considering that over 70% of Kaliser & Associates PC's legal practice is spent amending PPMs, drafting corporate resolutions/meetings, advising on lender defaults and (YES) structuring enticing capital calls and other mechanisms to bring in “rescue” capital, we thought some general methodologies, might be helpful.
Top 10 Methodologies:
- Unsecured loan to company
- Capital Call per Company Agreement
- Create a Preferred Equity Class
- Offer some of the GP economic upside as incentive for capital call
- Add a preferred return to existing Classes (possibly retroactive to initial investment) as incentive for pital call
- Combo of #4 and #5
- Reposition loan (rebalance with lender)/loan modification
- Forbearance of mortgage payments with lender
- Refinance
- Supplemental Loan on top of 1st loan
There are “pros” and “cons” with each option. Some need membership approval, lender approval and/or no approvals. All options should be discussed with members via a webinar with high-level projections and lay out the options and consequences in the webinar and ALWAYS have a “next steps” and definitive "timeline".
