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How do you monitor and manage the performance of your multifamily development capital stack over time?

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The capital stack of a multifamily development project refers to the different sources and types of financing that are used to fund the construction and operation of the property. As a multifamily developer, you need to monitor and manage the performance of your capital stack over time to ensure that you meet your financial obligations, optimize your returns, and mitigate your risks. In this article, we will discuss some of the key steps and tools that you can use to effectively track and control your multifamily development capital stack.

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David Eger

Vice President, Western Canada, Altus Group Limited [email protected]

1 Define your capital stack goals

Before you start monitoring and managing your capital stack, you need to have a clear idea of what you want to achieve with your financing strategy. Your capital stack goals should align with your project objectives, market conditions, risk appetite, and exit plan. For example, you may want to minimize your equity contribution, maximize your leverage, diversify your funding sources, or secure flexible terms and rates. Your capital stack goals will help you evaluate the performance of your financing options and make adjustments as needed.

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Calin Paunescu

Manager at Taty Management Chicago
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Investing in multi families properties in depressed areas looks very atractive due to low prices . However selecting the Property Management company is the key to a successful investment. Taty Management with over 30 years of experience in South Chicago is one that comes highly recomended . Together with sister company Taty Construction provide the best service at a very competitive prices.

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2 Establish your key performance indicators

Once you have defined your capital stack goals, you need to identify the key performance indicators (KPIs) that will measure how well you are meeting them. KPIs are quantifiable metrics that reflect the financial health and progress of your capital stack. Some common KPIs for multifamily development capital stack include debt service coverage ratio (DSCR), loan-to-cost ratio (LTC), loan-to-value ratio (LTV), internal rate of return (IRR), cash-on-cash return (CoC), and equity multiple. You should track your KPIs regularly and compare them with your benchmarks and expectations.

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3 Use a capital stack model

A capital stack model is a tool that helps you visualize and analyze the structure and performance of your capital stack. It illustrates the amount of capital raised from each source and type of financing, how much interest and fees you are paying, how much cash flow and profit you are generating, and how much equity you are retaining. This model can help you monitor and manage your capital stack by allowing you to forecast cash flow and profitability under different scenarios, identify potential gaps in your financing plan, evaluate the impact of market conditions on your capital stack, optimize your capital structure to achieve target returns and risk profile, as well as communicate with lenders, investors, and partners.

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Harvey Carroll

International Land Development Consulting | Financial Deal Structuring
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-In my past experience I’d focus more on “Non Recourse Consortium Financing”. For example, Land and infrastructure are huge cost usually required required for MultiFamily Land Development. So monitoring those percentages are extremely important. I also think it’s wise to bring in the land owner as as a Limited Partner and minimize their risk via small manageable phase development…. Secondly, look at the costs of infrastructure and bring them in as “Limited Partners” as well to excavate, install the wet n dry utilities, roads and flatwork/sidewalks, n such…. If structured properly you can avoid all or most of the interest payments due; however, if labor n expenses are needed then smaller loans with deferred and/or interest only loans.

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4 Review and update your capital stack regularly

Monitoring and managing your capital stack is not a one-time event, but an ongoing process that requires constant attention and adaptation. You should review and update your capital stack regularly to reflect the actual performance and status of your multifamily development project. You should also be prepared to make changes to your capital stack if you encounter any challenges or opportunities that affect your financing needs or goals. For example, you may need to refinance, restructure, or supplement your debt, raise more equity, or sell or refinance your property.

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5 Seek professional advice

Managing a multifamily development capital stack can be complex and challenging, especially if you are dealing with multiple lenders, investors, and partners, each with their own terms, conditions, and expectations. Therefore, it is advisable to seek professional advice from experts who can help you design, implement, and optimize your capital stack strategy. These experts may include real estate attorneys, accountants, brokers, consultants, and advisors. They can help you navigate the legal, financial, and operational aspects of your capital stack, as well as provide you with valuable insights and connections.

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6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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David Eger

Vice President, Western Canada, Altus Group Limited [email protected]
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Using software such as Argus Developer to modelout a detailed Capital Stack and Waterfall analysis will save a great deal of time and avoid Excel Calculation Errors. See link below for more info: https://argus1.altusgroup.com/argus-developer/

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凯瑟琳

RealAlts Global Real Assets Investment Consulting Specializing in Sustainability
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When there's a complex waterfall it's easy for miscalculation to occur. The accounting needs to be very transparent so that all parties to the investment understand the payments and agree with them.

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How do you monitor and manage the performance of your multifamily development capital stack over time?

1

2

3

4

5

6

1 Define your capital stack goals

2 Establish your key performance indicators

3 Use a capital stack model

4 Review and update your capital stack regularly

5 Seek professional advice

6 Here’s what else to consider

Real Estate Development

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How do you monitor and manage the performance of your multifamily development capital stack over time?

1

2

3

4

5

6

1 Define your capital stack goals

2 Establish your key performance indicators

3 Use a capital stack model

4 Review and update your capital stack regularly

5 Seek professional advice

6 Here’s what else to consider

Real Estate Development

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