Some lenders of finance or building projects (or investments) prefer that the developer or investor has some of its own funds at risk in the development. This is equity. Conversely, the developers and investors have a preference for minimizing equity contributions.

Accordingly, attempts are made to dilute the equity but this at the cost of a reduced share of the project returns.
Sources of equity capital can be:

Internal funds

Equity may take the form of internal funds available as savings or surplus returns and companies may retain profits for this purpose.
Funds may be obtained by releasing equity from an unrelated asset, for example, a developer may mortgage his or her house in order to obtain equity for a commercial development.

Joint venture

A building project may be developed by a joint venture where two or more entities form a relationship and pool their funds in order to raise sufficient equity.
Sometimes the entities may comprise the developer and the financier where the developer contributes expertise and some equity and the financier contributes most of the funds.
The financer will recoup interest and both parties will share any profit (or loss). 


A group of unrelated entities may be formed by a third party (or syndicator) to pool their funds in order to acquire a share of a property. The members of the syndicate would be co-owners of the property as tenants in common.

Share issue

A building development company might consider a capital raising by floating a share issue on the stock market to create a new public company or to expand an existing one.


This is an arrangement whereby a property is convert into securities. The main purposes of this process are to create additional liquidity and to enable part ownership of a large scale capital asset by many entities.
In short, a property may be more marketable in small parcels. The most common form of securities are trust units, hence property trusts.
Property trusts pool funds from individual depositors in order to acquire properties. The process comprises a trustee (the “owner” of the assets), a manager (the entity which manager the assets in return for a fee) and the unit holders (or investors).
Securitization of property has led to a debate about the relative merits of investing in direct property (the land and buildings) or in indirect property (trust units).
The benefits of property trust units when compared with direct property include:
  • increased liquidity of investment as units are purportedly easier and quicker to sell than
    would be the actual property.
  • expert management of a specialist asset is available
  • ability to securitise different parts of the cash flow with income units, capital growth units
    and mortgage units.
  • ability for investors to spread their exposure to property by having units in trusts which may
    be specialized in terms of land use (office trusts, retail trusts, industrial trusts, mixed trusts)
    and /or location (state by state or a combination).


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