SS154: What is Rescue Capital

SS154 What is Rescue Capital

Rescue capital is a great solution for investors who might not have enough equity to refinance their properties. In this episode, Charles discusses what rescue capital is, and how it can assist investors.

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Talking Points:

  • For real estate investors who are unable to, or unwilling to refinance their property’s debt with a traditional lender (possibly because of higher rates or tighter underwriting), or maybe their property has dropped in value and the owners don’t want to sell at a loss; rescue capital might be the next viable option.
  • Rescue capital is a type of gap financing that is typically provided to fundamentally strong real estate projects and businesses that require funds to reinforce their business plan, usually due to higher borrowing costs, lower revenues in the short term, and/or inflation. Not all these businesses and real estate projects are distressed but, some are. Rescue loans are regularly provided by direct and other alternative lenders.
  • The typical situation would be a property owner who has a solid property and is trying to refinance into a permanent loan. The bank now requires the owner to invest more cash to refinance. This owner may split the difference with a rescue capital lender. It allows the property owner to keep the asset, while not having to go into their pocket for the entire sum required by the lender. Rescue capital providers will often require the property owner to infuse capital into the project alongside them. This further shows an alignment of interest on the part of the owners.
  • The rescue capital is an efficient, cost-effective solution to recapitalizing fundamentally sound properties. It allows the investor to bring in for lack of a better word, a partner, to inject cash into their property, with hopes of refinancing them out in the next few years. Once the property increases in value; the investor is able to access better financing terms, and take out their new rescue capital partner.
  • When I call the rescue capital provider a “partner”, I am referring to the fact that rescue capital is normally offered as preferred equity (learn more about preferred equity in episode SS103). It is structured as a loan with high interest rates that is paid right after the senior debt is paid, and before any other investors are paid. Voting rights for the initial investors will also be diluted, as the new rescue capital provider enters the deal.
  • One of the main points is that; rescue capital is available for fundamentally sound properties. They are most likely not interested in working with lower-quality properties. One of the themes I preach on this show is that investors should focus on buying good properties. If you have a D-class or lower C-class property; rescue capital lenders will most likely not be interested in your asset.
  • Rescue capital is an efficient and cost-effective solution to recapitalizing an asset as opposed to allowing an asset to fall into disrepair or foreclosure.

Transcript:

Charles:
Welcome to Strategy Saturday. I’m Charles Carlow, and today we’re gonna be discussing what is Rescue Capital.

Charles:
Have you always wanted to invest in real estate, but didn’t have the time, didn’t know where to find the deals, couldn’t get the funding and didn’t want tenants calling you. Since 2006, I’ve been buying income producing properties and great locations that provide us with consistent passive income. While we wait for appreciation in the future and take advantage of tax laws while we’re waiting and unlike your financial advisor, we invest alongside our investors in every property we purchase. Check out to investwithharborside.com. If you like the idea of investing real estate, if you like the idea of passive income partner with us at investwithharborside.com, that’s investwithharborside.com.

Charles:
For real estate investors who are unable to or unwilling to refinance their property’s debt with a traditional lender, possibly because of higher rates or tighter underwriting, or maybe their property has dropped in value and the owners don’t wanna sell the loss, rescue capital might be the next viable option.

Charles:
Rescue Capital is a type of gap financing that is typically provided to fundamentally strong real estate projects and businesses that require funds to reinforce their business plan, usually due to higher borrowing costs, lower revenues in the short term, and or inflation. Not all these businesses in real estate projects are distressed, but some are, and rescue loans are regularly provided by direct and other alternative lenders. Now, the typical situation would be a property owner who has a solid property and is trying to refinance into a permanent loan. The bank now requires the owner to invest more cash to refinance. This owner may split the difference with a rescue capital lender. It allows the property owner to keep the asset while not having to go into their pocket for the entire sum required by the lender. Rescue capital providers will often require the property owner to infuse capital into the project alongside them.

Charles:
This further shows an alignment of interest on the part of the owners. Now, the rescue capital is an efficient cost-effective solution to recapitalizing fundamentally strong and sound properties. It allows the investor to bring in, for a lack of a better word, a partner to inject cash into their property with hopes of refinancing them out in the next few years. Once the property increases in value, the investor’s able to access better financing terms and take out their new rescue capital partner. When I call the rescue capital provider a partner, I’m referring to the fact that rescue capital is normally offered as a preferred equity type investment. And you can learn more about preferred equity. In episode SS 1 0 3. It is structured as a loan with high interest rates that is paid right after the senior debt is paid and before any other investors are paid. Voting rates for the initial investors will also be diluted as a new rescue capital provider enters a deal.

Charles:
Now, one of the main points is that rescue capital is available for fundamentally sound properties. They’re most likely not interested in working with lower quality properties or old properties. And one of the themes I preach on the show is that investors should focus on buying good properties. If you have a DE class or lower C class property, rescue capital lenders will most likely not be interested in your asset. Rescue capital is an efficient and cost-effective solution to recapitalizing an asset as opposed to allowing an asset to fall into disrepair or foreclosure. So I hope you enjoyed. Please remember to rate, review, subscribe, submit comments, and potential show topics at globalinvestorspodcast.com. If you’re interested in actively investing in real estate, please check out our courses and mentoring programsat syndicationsuperstars.com. That is syndication superstars.com. Look forward to two more episodes next week. See you then.

Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar, LLC, exclusively.

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