The document discusses different capital stack structures for real estate investments. It describes a Denver high-rise apartment development that used a 65% construction loan and option to add mezzanine financing up to 85% LTV, which increased returns but also risk. It also describes a successful single tenant retail portfolio acquired using a DST structure with 50% long-term CMBS financing, which provided stable cash flows and returns. The document cautions that while increased leverage can boost returns, it also increases risk, so capital stack design is important to balance risk and return.

1. Capital Stacks
What Worked, What Didn’t
Covington Realty Partners

2. The Good

3. The Bad

4. The Ugly

5. One That Didn t Work
• Denver, CO high-rise apartment
development
• Large deal size - $80M
• 65% construction loan

6. Didn t Work (cont.)
• 35% equity
• Option to add mezz financing up to
85% of the capital stack
• Top of the market proforma rents

7. Apartment Development
120
100
80
Equity
60
Mezz Debt ‐ 14%
40
Construction Loan ‐ Libor
20 + 225
0
Capital Capital
Stack ‐W/O Stack ‐W/
Mezz Mezz

8. Denver, CO High Rise Apartment
Development
• Total capitalization - $80M
• 65% LTV construction loan due to size ($52M)
• Equity amount – $28M
• 3.25% debt interest rate w/o mezz (65% LTV)
• 5.77% blended interest rate w/mezz (85% LTV)

9. Denver, CO High Rise Apartment
Development (cont.)
• Equity Multiple – 1.71 w/o mezz, 2.04 w/mezz
• Levered IRR – 17% w/o mezz, 22% w/mezz
• Yield on cost – 7.25% in either scenario
• Investor required return – 2.0 equity multiple,
20% IRR

10. One That Worked
• Single Tenant Triple Net Retail
Portfolio
• Acquired in a DST structure

11. One That Worked (cont.)
• 50% LTC CMBS permanent debt
• 50% bridge equity
• Approximately 2/3 investment grade,
1/3 sub-investment grade

12. Retail Portfolio
Bridge Equity
CMBS ‐ 5% Fixed
Capital Stack

13. Retail Portfolio ‒ DST Structure
• Blended acquisition cap rate – 6.72%
• Closing costs – 3%
• Fees/syndication expenses – 10%

14. Retail Portfolio ‒ DST Structure
(cont.)
• Bridge equity funded at closing –
2.5%
• Interest rate on debt – 5%
• Levered return to investors – 6%

15. I am obviously NOT Clint Eastwood
But I’m feeling lucky……..