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Figure 25: Example of a Capital Stack <br />Equity investments, <br />commonly known <br />as Investment <br />Debt investments, <br />commonly known <br />as Financing <br />Higher Risk, <br />Higher Return <br />Lower Risk, <br />Lower Return <br />Preferred Equity <br />Mezzanine Financing <br />1st Mortgage <br />pefereeqmty is provided by banks mother investors that want <br />axigner rate mreturn compared tothose under debt instruments, <br />and are willing to take nngreater risk, provided the primary risk <br />resides with the ononaoryequity; may oenegotiated with sponsor <br />avmwhen equity and any return oninvestment will be distributed, <br />out returns are typically dependent nnthe <br />availability of excess cash flow <br />Mezzanine financing elpsmill tegap created w an en^ers <br />will only lend at a certain ratio that is inadequate for <br />acquisition and improvements, it can be in the form of debt, <br />equity, or both, and may be provided by mission -oriented or other <br />financial intermediaries risk/reward for mezzanine sits between <br />debt and equity, mmwmoamezzanine lender would typically ue <br />-aid after debt but before equit <br />ew <br />wisdorld <br />Typically the largest funding source, has top lien priority (is repaid <br />first and in full in event of default), least risky and so generates <br />lowest rate of return on investment, often government insured <br />`Financing structures take many forms, can be highly complex, and may not always include the debt and equity types <br />presented here. <br />Council role <br />* Investigate future Council roles in strategies to share risk. <br />Increasing housing variety and affordability through <br />common int,-rest communities <br />Acommon interest community ioatype ofreal estate inwhich individual homeowners <br />jointly own and operate parts of the property. Frequently seen in condominium and <br />tovvnhorne developments, this ownership strategy can a||ovv residents to enjoy greater <br />affordability, shared amenities and maintenance, and predictable property condition. Roles <br />and responsibilities are set forth in legal documents, and a homeowner association is <br />responsible for the shared property. <br />Homebuilders in the region have expressed concern that a wave of litigation is reducing the <br />availability and increasing the costs of housing in common interest communities. They have <br />proposed a set of changes to the Minnesota Common Interest Ownership Act (MCIOA) that <br />would require specific notifications to ensure that all parties are fully informed of the actions <br />and potential impacts of any litigation. Council policy is to increase housing opportunities <br />throughout the region. Since common interest communities can provide a significant number <br />of affordable units, especially for households at 80% of AMI, the Council intends to work <br />with the various parties to identify and support solutions that further regional outcomes. <br />HOUSING POLICY PLAN FOUR: Opportunities for Collaboration <br />