While the project itself is estimated to cost $10 billion, Cain is hoping to raise more than $1.6 billion through its founder bonds, says Propmodo, a digital media publication and intelligence platform focused on the intersection of commercial real estate, technology and the built environment.
These loans, however, which Cain believes its rich buyers can afford, are low-reward, high-risk bets that could cause lenders to lose their money if the project goes belly-up, The Journal reported.
“Even though these are luxury buyers, I would guess they’re going to face more exposure if the project goes bust than they may realize,” David Reiss, a Cornell Law School professor who researches real-estate finance, told The Journal. “They’re getting paid a small amount to take a large amount of risk … but because they’re luxury, they may be able to tolerate the risk better.”
What Cain is offering in exchange for its founder bonds
The bonds offer a 5% return on investment, which is lower than the 10-year Treasury Yield’s near 5.3% “risk-free” return. Investors purchase the Founder Bonds through a separate contract from the one used to buy the project’s condos, and only those who are actively buying an apartment can purchase these bonds.
Apartment prices are said to start at $15 million, with one July reservation reaching $200 million, according to The Real Deal. Propmodo also noted that the bonds are usually worth about 30% of the apartment cost and are totally voluntary — all who have bought apartments so far are said to have committed to buying the founder bonds as well.
Cain is not relying on the bonds’ money alone to complete this project. It has secured a $2.8 billion senior construction loan from J.P. Morgan and a $1.5 billion mezzanine loan from VICI Properties, according to The Journal. The founder bonds are junior to both loans, which means they are given lower repayment priority.
Cain’s co-founder and CEO, Jonathan Goldstein, has publicly described the project as a vote of confidence in the luxury market.
“This transaction is indicative of the confidence the market has in our vision for One Beverly Hills,” he said, according to a press release when the J.P. Morgan and VICI financing closed.
According to Cain’s project page, One Beverly Hills sits on 17.5 acres and will include two Aman-branded residential high-rises, one Aman Club, the Aman Beverly Hills hotel, tailored high-end retail, dining and wellness facilities, and 10-acre botanical gardens with open space.
