In the US, the real estate tax code is written in a way twisting investors’ hands to always be exposed only via equity.
However, this is not the case in other jurisdictions.
We make a case that mezzanine debt is the most versatile exposure throughout the whole cycle.
However, this is not the case in other jurisdictions.
We make a case that mezzanine debt is the most versatile exposure throughout the whole cycle.
In a perfect world:
• at the early stage of the real state cycle be accumulating at depressed valuations
• at the mid-cycle continue accumulating, while also lending via mezz debt
• during the late-cycle stage lending via senior & mezz debt, with rare if any equity exposure
• at the early stage of the real state cycle be accumulating at depressed valuations
• at the mid-cycle continue accumulating, while also lending via mezz debt
• during the late-cycle stage lending via senior & mezz debt, with rare if any equity exposure
Deal selection will always be the most important aspect of the alternative asset capital allocation process.
We have a saying: #greatdealsonly which means we will search far & wide, and look at 100s of opportunities, before deciding to expose to a single one.
We have a saying: #greatdealsonly which means we will search far & wide, and look at 100s of opportunities, before deciding to expose to a single one.
Choosing the right mezzanine debt opportunity can result in the following outcomes:
• tax advantages since withholding tax on interest is lower than dividends & capital gains in almost all OECD countries
• downside protection in terms of valuation since mezz can achieve...
• tax advantages since withholding tax on interest is lower than dividends & capital gains in almost all OECD countries
• downside protection in terms of valuation since mezz can achieve...
...a break-even outcome even if valuation declines by -20% or even -30%
• in an unlikely event of a default, one holds the 2nd lien over a tangible asset resulting in a minimal chance of losing your principal
• mezz debt can achieve equity-like returns of 15%, or even 20% pa
• in an unlikely event of a default, one holds the 2nd lien over a tangible asset resulting in a minimal chance of losing your principal
• mezz debt can achieve equity-like returns of 15%, or even 20% pa
• • •
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