The major source of real estate financing is still either through debt or private equity. Hybrid financing is an alternative source of funding for real estate projects. It combines two forms of finance such as equity and debt and provides lenders the right at loan maturity to convert the debt to a percentage ownership or equity interest in the property.
This usually happens when borrowers cannot meet their obligations and loan is not repaid timely and in full. Hybrid financing, also known as mezzanine financing is often applied within the real estate sector to trading and development deals and risks are shared by both the lenders and developers. Providers of hybrid financing include venture capitalists and banks. There is little due diligence to loan processing on the part of lenders. Hybrid instruments are mostly short term and can be substituted with low interest loans or property sale, as an exit strategy. Loans are secured quickly mostly without collateral and the high rates charged by companies is an exit strategy. Hybrid capital is of benefit to real estate finance companies and is treated as equity on companies’ balance sheets. This form of financing is a good option for real estate developers where equity investments are unable to satisfy financial demands of development projects.
REIC provides expert advice on real estate investment financing. A Real Estate Investment Trust (REIT) is a security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. Hybrid REITs are a combination of mortgage and equity REITs. Since a large percentage of property developers’ assets are still tied up in real estate assets, hybrid real estate investment trust (REIT) provides an opportunity for such companies to free up this cash and still hold indirect interest in a portion of the assets. Nigeria has a strong property market but this is not reflected in the stock performance of REITs in the stock exchange. Unfortunately, there is low trading of REIT in Nigeria as REIT stocks are highly volatile and have not offered high returns in the past. Many real estate finance firms do not have their stocks listed and investors are either unaware or sceptical about REIT.
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