For mission-driven, impact-focused multifamily real estate sponsors, the calling is clear: to create Thriving Communities that transform lives by providing stability for working American families.
But raising the capital you need from partners who understand your value proposition can be a more challenging endeavor. And in a market where many lenders remain selective and financing timelines can be unpredictable, constructing your capital stack using equity and bank debt alone may be difficult.
Rather, the more effective way to scale a portfolio of multifamily assets is to work with a mission-aligned capital partner who understands where your social and financial goals intersect.
The limitations of bank debt
Although traditional bank lenders are no longer as active in mortgage lending as they were before the Global Financial Crisis,1 they nonetheless remain an important part of the ecosystem—in no small part because bank mortgages are typically cheaper than real estate-backed loans originated by private lenders.2
However, the tradeoff incurred for a lower cost of capital is often added friction. Regulatory tightening and conservative underwriting can also lead to lower leverage ratios, leaving sponsors with a larger equity check to write.
Not to mention, banks frequently have a drawn-out lending timeline,3 a potential deal-killer in competitive markets where sellers prioritize speed and certainty of close. When a multifamily deal shows up, you need to act fast, and cheap debt that loses you a deal is a costly arrangement.
Private credit offers speed and certainty of execution
Loans from private credit funds, such as the DLP Lending Fund, are potentially a faster and more agile alternative. Like banks, some private credit funds lend based on the asset’s potential, the sponsor’s track record, or the strength of the relationship between the borrower and the lender. But private credit funds sometimes have more flexible underwriting standards than banks, which means sponsors may be able to access higher leverage or secure financing against properties that banks refuse to lend against. In short, private credit funds can provide loans designed to meet borrower needs across a wide range of real estate transactions.
For a sponsor, the primary advantage of borrowing from a private credit fund is certainty and speed of execution. This allows borrowers to close in weeks rather than months. DLP Capital’s private credit platform is designed to provide borrowers with responsive capital solutions for time-sensitive real estate transactions.
Borrowing from a private credit fund also means the potential for:
- Higher Leverage: Private credit lenders may be willing to lend at higher LTVs, which reduces your equity outlay.
- Flexibility: Private credit funds can structure short-term bridge loans that allow sponsors to acquire properties and stabilize occupancy before refinancing into lower-cost, long-term agency debt.
- Reliability: In a volatile market, retrading is a common headache. Established private credit funds prioritize relationships and reputation, ensuring the terms you sign are the terms you close with.
Filling the gap with mezzanine debt and preferred equity
Sometimes, senior debt and common equity alone aren’t enough to close a deal. This is where mezzanine debt and preferred equity come in. These instruments sit between senior debt and common equity, allowing sponsors to take on greater leverage and retain more control over the deal.
Preferred equity functions like gap financing. The capital provider typically receives a fixed return that is paid out before the common equity holders.4 For the sponsor, this is often more cost-effective than bringing in a joint venture (JV) partner who would demand a large share of the backend profits. Mezzanine debt, meanwhile, puts lenders in a second lien position, features an intercreditor agreement (ICA) with senior lenders, and may include embedded options or warrants.5 Both preferred equity and mezzanine debt may also be secured by the sponsor’s equity interest in the property.
Capital solutions, such as mezzanine debt solutions from DLP Capital, can help sponsors address this layer of the capital stack. They enable sponsors to increase their leverage, which means higher potential returns and lower equity requirements. By working with a capital partner that provides subordinate loans, sponsors can fill the gap without ceding operational control.
