Nuances how does 'Equity' Participation by Institutions affects Returns?
I'm trying to understand the nuances different deal structures imply in terms of returns. Understanding them in terms of return is the hard part. I understand the basics in the difference between senior debt, mezzanine debt, and equity. They have different levels of risk, expected returns, and liquidation/repayment preferences.

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The part I understand:

First Deal Type I don't really need any help with is Private. At least for the purpose of this thread;  'Private' deal structure means there is no loan of any sort taken out with a lending institution. The deal is done all cash or financed privately with friends, family,  &amp; private investors and not a lending institution. How this deal type affects things is simple; no interest payments, no profit split, and 100% participation in equity portion of the deal.

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Parts I *think* I understand: (correct me where I am wrong)

* I believe 'Institutional Debt' type is a deal that has taken on debt from an institution. 'Institutional Equity' is where an institutional has taken a stake in the deal in return for financing.
* I believe 'Institutional Debt &amp; Equity' is when the company executing the deal/investment project takes on a loan from an institution and the institution also participates in the equity % portion of the deal in exchange for financing aside from what was part of the loan.

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Now for the parts *I do not understand:*

* What does it mean for the investor's returns when an institution is participating in the equity of the deal and also financing the debt? I mean normally for a loan you have a schedule of repayment for the loan that uses NOI of the property to pay it down. But how does it work when the institutional also participates in the equity?
   * Doesn't a portion of the NOI belong to the institution based on their % of equity ownership? So can't you only use the % of the NOI each month that does not belong to the institution to service the debt while the rest goes to the institution each month?
   * Finally when you sell the project at the end of the deal; the institution also gets a % of the exit price based on their equity share % correct?

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[{"id": "eew5j3j", "text": "I currently work for a REPE shop (\\~5 years experience) and I don't know if I've ever heard the words private/institutional used the way you're using them (though this could definitely vary by geography and may be part of your vernacular). Anyway, using your terminology and assuming this is based on US law:\n\n&amp;#x200B;\n\nWhat you think you understand:\n\n1. Institutional - usually just means that the *institution* that you're working with has a lot of experience is a well established entity (your uncle isn't institutional, but JPM would be). Equity is still equity regardless of who is providing it, and debt is still debt. \n\nWhat you don't understand:\n\n1. If an outside party (I'm assuming you're referring to a General Partner (GP) finding a Limited Partner (LP) to provide capital) funds both the equity and debt they would almost certainly look at it as two different transactions, and the deal would perform no differently than if you got a loan from a different bank/institution. The equity portion that the LP would be due for the equity investment would be pari passu with any other equity in the deal unless otherwise agreed upon. The debt would behave just like debt, they would collect interest and their claim on cashflow/value would be senior to any equity partners (including themselves). \n2. Upon sale the note for the debt would be paid off first (it's senior) and then equity partners would be paid off per the agreed upon compensation structure for the investment.\n\n&amp;#x200B;", "replies": [], "depth": 1}]