Begin with the capital structure
A lender generally relies on a borrower meeting obligations under a facility. An equity investor participates in the economics of ownership after the obligations ranking ahead of that equity are met.
The same asset can affect investors differently
Property income, capital expenditure and asset value affect both positions, but in different ways. A decline in value may first reduce equity while still affecting the lender's recovery margin and refinancing options.
Understand further funding decisions
Development equity can require further capital when costs rise or sales are delayed. A credit investment may face a different decision about waivers, additional funding or enforcement. Neither position should be described using only the address of the asset.
Identify the route back to capital
Before investing, identify the legal interest being acquired, the rights attached to it and the events needed to return capital. Those details are essential to comparing opportunities.
- Distinguish ownership from a lending position.
- Understand the rights attached to the investment.
- Consider leverage, further capital and exit control.
This perspective is general information. Consider the relevant documents and your circumstances before making an investment or finance decision.