Bethesda, MD – Peakhill Capital, a prominent commercial real estate lender, recently formed a strategic joint venture with Declaration Partners, an investment firm backed by the family office of David M. Rubenstein. The collaboration aims to address the growing need for “gap capital” in the U.S. residential rental market, focusing on multifamily, student housing, and build-for-rent (BFR) projects.
Joint Venture Objectives and Scope
The newly formed joint venture is designed to provide preferred equity investments ranging from $5 million to $25 million. These funds will primarily support asset owners who face loan paydowns, offering a much-needed financial cushion. The initiative is a significant expansion of Peakhill Capital’s preferred equity financing platform, with the joint venture aiming to produce $300 million in investments over the next 12 months across the U.S.
Peakhill Capital brings its extensive experience in managing over $10 billion in assets across North America, focusing on credit, co-GP, and preferred equity strategies. The partnership with Declaration Partners, which itself manages $2.2 billion in assets, is expected to significantly bolster Peakhill’s ability to offer tailored financing solutions while scaling operations across the multifamily sector.
Market Context Driving the Collaboration
The joint venture comes at a time when property owners, especially in the multifamily sector, are under increasing pressure to recapitalize their assets due to loan paydowns required by lenders. Traditional lending solutions often fall short of addressing these needs, creating a market opportunity for more flexible capital solutions. Preferred equity, often seen as a middle-ground financing option between debt and equity, has become increasingly popular for this very reason. Unlike mezzanine debt, preferred equity offers investors a senior position in the capital stack relative to common equity, providing a blend of higher returns with a reduced risk profile.
Strategic Implications for Peakhill Capital
For Peakhill Capital, this partnership represents a significant step in expanding its reach within the U.S. real estate market, particularly within the high-yield segments of multifamily and rental housing. The collaboration is expected to enhance Peakhill’s ability to deliver innovative and customized financing solutions to its clients, driving growth and operational efficiency across the board.
Sandor Biderman, Managing Director of Peakhill Capital U.S., highlighted the alignment of this partnership with the company’s broader vision. According to Biderman, the joint venture not only complements Peakhill’s existing capabilities but also significantly extends the firm’s reach in the high-yield multifamily sector—a critical area of growth for the company.
Understanding Preferred Equity
Preferred equity is a critical tool in real estate financing, often used to bridge the gap between the equity that developers can raise and the total capital needed to fund a project. Unlike common equity, preferred equity provides investors with priority on returns and cash flows. Depending on the deal structure, this can mean regular payments similar to debt (known as “hard” preferred equity) or payments contingent on available cash flow (known as “soft” preferred equity).
In the context of the Peakhill-Declaration joint venture, preferred equity is particularly advantageous because it offers flexibility. For instance, it allows for various forms of participation, meaning investors might have opportunities to gain a share of any upside beyond their fixed returns, depending on the project’s success.
Broader Industry Context
The announcement of this joint venture comes amid broader trends in the U.S. real estate market, where investors and property owners alike are grappling with rising interest rates and stricter lending conditions. The demand for preferred equity as a flexible financing solution has grown, particularly in sectors like multifamily housing, where traditional debt financing is becoming more challenging to secure.
Declaration Partners, founded in 2017, has quickly established itself as a key player in the investment landscape, leveraging the extensive experience of its team, which boasts over 250 years of combined institutional investment experience. The firm’s investment strategies include real estate, tactical growth equity, GP solutions, and other opportunistic investments. Anchored by the family office of private equity veteran David M. Rubenstein, Declaration Partners has a strong focus on long-term outcomes and alignment with its partners.
Peakhill Capital, on the other hand, has been at the forefront of asset management in North America, with a direct lending platform that spans the full capital stack across various asset types. The firm is also a CMHC-approved lender for multi-unit residential projects, including term, construction, and affordable housing programs. Through its equity division, Peakhill Equity Partners, the firm invests in ground-up development and value-add projects across Canada and the U.S., with a keen eye on identifying opportunities that offer superior risk-adjusted returns
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Strategic Response
The Peakhill-Declaration joint venture represents a strategic response to the evolving needs of the U.S. real estate market, particularly in providing flexible and innovative capital solutions to property owners. As the demand for preferred equity investments continues to rise, this partnership is well-positioned to capitalize on emerging opportunities and make a significant impact across the multifamily and rental housing sectors.
This partnership underscores a broader industry shift towards more adaptive and responsive financing strategies, as traditional lending avenues become more constrained. By leveraging the combined strengths of Peakhill Capital and Declaration Partners, the joint venture is set to play an important role in shaping the future landscape of preferred equity availability in North America.
