Raising Investor Equity

The financing of real estate projects in Israel is often based on a combination of equity on the part of the developer together with credit from a financing provider, known as senior debt. Sometimes, additional layers of financing, such as mezzanine financing, are added to this structure to bridge gaps. In most cases, the financing provider (usually a bank or a non-bank financing provider) requires equity of between 20% and 40% of the total project cost.

There are situations in which a financing gap is created that is difficult to solve by increasing the senior debt alone. This can be due to strict equity requirements of the lender, regulatory restrictions on the loan-to-value (LTV) ratio, or a need for a quick cash infusion to meet critical milestones. In these situations, a common solution is to add an additional equity investor to the project, usually through a partnership or the allocation of rights, to strengthen the equity base and allow the continued progress of the project.

Financing through the addition of an investor or partner

Bringing in an investor or partner with financial capacity is an arrangement in which an external party joins the project and provides equity. In return, the investor receives economic rights in the profits of the project, and sometimes also management rights or priority mechanisms in the repayment of the investment. Unlike a standard loan, this solution strengthens the equity layer of the project. As a result, it improves the overall financing structure, reduces cash flow pressure in the short term, and facilitates obtaining senior financing on better terms.

Key advantages of financing through an investor:

  • Rapid strengthening of the equity base: Infusing capital from an investor makes it possible to meet the equity requirements of senior financing providers, without increasing the project’s debt.

  • Maintaining continuity and progress: When immediate financing is required for payments to suppliers, to meet milestones or to cover planning and execution expenses, the entry of an investor prevents an operational stoppage and ensures that the project will continue to progress as planned.

  • Structural flexibility in relation to debt alternatives: In many cases, capital from an investor enables a more balanced and stable financing structure compared to adding expensive and complicated layers of debt (such as subordinated loans), and makes it easier to get bank project financing.

  • Improving financing conditions with lenders: Strengthening the equity of the project improves its financial stability and reduces the perceived risk in the eyes of financing providers. As a result, financing may be obtained on more favorable terms.

  • Possibility of risk sharing and operational efficiency: When the investor is also a party with management or construction experience in the field of real estate, the investor’s participation can strengthen the project's management, oversight, and execution capabilities, in accordance with the agreements between the parties.

Reiten Mortgages and Real Estate operates in the field of credit consulting for real estate developers while with practical familiarity with project-financing structures, and in particular with transactions where a stronger equity base is required through the participation of an investor or partner in the project. An active database of contacts with developers with cash flow capacity enables matching between a defined financing need and a suitable source of capital, up to the development of a clear transaction structure that is coordinated with the stage of your project.

Interested in considering adding an investor or partner to your project? Leave us details or call us at *8537 during business hours; we will be happy to assist.