The Capital Stack
Getting to know Sheffer Capital
Since this is the opening letter, we will start by introducing Tory Sheffer and Sheffer Capital. As Owner of Sheffer Capital, Tory is responsible for all aspects of real estate acquisition & management. This includes deal sourcing, underwriting, structuring equity, raising capital & asset management. Tory got his start in real estate as a residential broker. He made his initial break into multifamily real estate by acquiring 232 units in a class A market. There will be more on this large initial accusation to follow in next weeks letter.
Sheffer Capital is a real estate private equity company focusing on value-add syndications, and new development across the US. Sheffer Capital currently has ownership in 196 units valued at $26M with another 213 in early development stages totaling $33M.
As you follow along, this newsletter will highlight the current and past deals acquired by Sheffer Capital. Including a new development of airplane hangars!
Major Market News
Here’s what’s new
In the coming weeks, this section of our letter will highlight high level news that we find interesting in Commercial Real Estate (CRE), Private Equity (PE), & Venture Capital (VC).
Tips & Tricks
What is a Capital Stack?
To conclude our letter each week we are excited to share some of our knowledge and experience in the multifamily sector. We will be reviewing the process of acquiring a multifamily investment as well as providing basic definitions commonly used in multifamily terminology.
Let’s start with the term ‘Capital Stack‘:
The Capital Stack is the source of all capital required in an acquisition. The are 4 common layers that make up the full Capital Stack.
Senior Debt: This is often a bank loan equal to 60-80% of the total project cost. This will be at the lowest rate, with first priority for payout.
Mezzanine Debt: This is often a loan equal to 10-20% of the total project cost. This is paid monthly as a debt payment. This is uncommon in deals below $25M, and is 2nd priority in the payout waterfall.
Preferred Equity: This is a fixed rate of return funded by equity investors. This is paid out after all debts. For example, an investor invests $100,000 into a project at 8% preferred equity. The property makes $10,000 of free cash flow to distribute (after debt), the first $8,000 goes to the preferred equity holders giving them an 8% return on their $100,000 investment.
Common Equity: This is an investment which usually totals 20-40% of the total project cost. For example, an investor invests $100,000 into a $1M investment raise for a property worth $3M, they would own 10% of the equity in that property. For every $10,000 of free cash flow distributed, this investor receives $1,000. This is the final level in the payout waterfall. This is commonly paired with preferred equity.
Thank you for reading and your interest in Sheffer Capital. We look forward to having you follow along on the journey.
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