Understanding the role of structured investments in the capital stack is key to appreciating their value in property development finance. Traditionally, the capital stack consists of different layers: senior debt from a bank, developer equity, and sometimes mezzanine finance. Each element carries its own risk profile, return expectations, and terms.
These investment instruments can be positioned strategically within this structure. They may sit alongside or just above senior debt, offering additional funding without requiring the developer to give away equity upfront. This is particularly useful when a project has secured planning and needs finance to begin construction or cover working capital, but equity dilution is undesirable at that stage.
Investors who participate in these opportunities often receive a fixed return over a set period – typically two years – with interest paid at regular intervals or rolled up until maturity. If required, the investment can be secured against the developer’s property or other assets, providing an additional layer of protection for investors. Repayment is usually aligned with the project’s exit strategy, such as a refinance or sale.
The flexibility of these structured investments makes them attractive not only to developers but also to investors. They offer clarity, fixed returns, and the opportunity to be involved in well-structured developments – without the complexity or long-term commitment of taking an equity position. When arranged effectively, this type of funding creates a win-win scenario that can help bring a project to life.
Interested in investing?
Loan notes could offer you fixed returns, asset-backed security, and a clear exit strategy-providing a flexible and structured way to get involved in property development without taking on the risks of direct ownership.
