Principal Protected Private Placement Mortgage (PpM)



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How is it 100% principal protection for private placement investors?...if the real estate deal were to return zero and have no value whatsoever (very unlikely) the 12% annual coupon on just the PPC investment, over the term, and 100% of the PPC principal returned at the end of term, equals more than 100% of the combined capital into the real estate and the PPC.  Additionally, the investors have a senior secured position on the real estate and in the underlying assets of the PPC.

The typical deal structure of the Real Estate Private Placement is a Participating Preferred or Equity position.  Thus, in this structure, the Accredited Investors (private placement investors) in addition to a 6% IRR on their total investment (RE & PPC combined), they have a share of the Equity or Participation in a certain percentage of either the gross revenues (royalty return) or a certain preferred percentage of the net proceeds.  They have a blended return that could be low double digits.  The Real Estate buyer or PPM Issuer typically maintains the controlling share in the real estate.

90% to 100% LTV can be structured in this type transaction and since the Accredited Investors have either an Equity position or  Participating Preferred return on the cash flows, the Purchaser/Issuer could pay 0% up to 2% to 6% Interest Only on the Private Placement Mortgage, for the entire term.  Note however, the real estate buyer must refinance at year 10 (or sooner) for 100% of the original real estate investment to return investors principal which then makes them whole on their return of combined principal...traditional bank finance should be easy at this point after 10-years of appreciation.

See diagram below...