An equity kicker in commercial real estate is a piece of equity in a project that a lender may agree to in exchange for a reduced interest rate on a mezzanine loan. In most cases, an equity kicker will only be triggered when the owner sells the property. In many situations, an equity kicker may also have a hurdle, for instance, the mezzanine lender may get 20% of the returns over and above a 10% IRR.

An equity kicker is a type of loan product that is offered by a lender in exchange for a piece of equity in the project. This type of loan is typically offered when a commercial real estate borrower seeks out a mezzanine loan, but does not want to pay an extremely high interest rate. The lender may agree to reduce the interest rate in exchange for a piece of equity in the project. In most cases, an equity kicker will only be triggered when the owner sells the property. In many situations, an equity kicker may also have a hurdle, for instance, the mezzanine lender may get 20% of the returns over and above a 10% Internal Rate of Return (IRR).

Commercial Equity Lines of Credit are a type of loan product that allows a borrower to access funds up to a certain amount. The borrower can draw on the line of credit as needed, and only pays interest on the amount that is used. The borrower can also pay back the loan and draw on it again as needed. This type of loan product is typically used for short-term financing needs.

An equity kicker in commercial real estate is a way for a borrower to reduce the interest rate on a mezzanine loan in exchange for a piece of equity in the project. This equity kicker is usually triggered when the owner sells the property. Additionally, the mezzanine lender may get a percentage of the returns over and above a certain Internal Rate of Return (IRR).

Investing in commercial real estate also offers a number of tax benefits. For example, investors may be able to take bonus depreciation, which is a form of accelerated depreciation. The Tax Cuts and Jobs Act of 2017 allows some investors to take up to 100% of the property’s value as a depreciation deduction in their first year of ownership, at least until 2025.

The risks associated with an equity kicker in commercial real estate include the possibility of decreased net operating income, which could lead to the owner being liable to make principal and interest payments or even, at some point, pay back the entire loan prematurely. Additionally, income taxes, the amount of money to be borrowed, and the various financing alternatives available should be considered before making a decision.

Source: www.commercialrealestate.loans/commercial-real-estate-glossary/equity-kicker and www.multifamily.loans/apartment-finance-blog/cash-on-cash-returns

The alternatives to an equity kicker in commercial real estate are payment-in-kind interest (PIK toggle) and intercreditor agreements. PIK toggle is a process in which a borrower can avoid paying part of their interest until they actually repay their loan, by increasing the principal of the loan itself. An intercreditor agreement is a contract between two lenders that governs the rules between the two parties in regards to how and when each will get paid.

Sources:

• Mezzanine Financing for Commercial Real Estate
• Payment-in-Kind Interest