What Investors Should Know About the Benefits of Uncalled Capital Commitments

If you’re looking to invest in commercial real estate, you might be wondering how to better leverage your investment. You can do so with uncalled capital. During a typical real estate deal, the total amount of committed capital is not needed right away. Instead, a certain portion of the total investment, or committed capital, is earmarked for future use. This amount is uncalled capital, and there are several advantages to using these in commercial real estate partnerships. Let’s take a deeper look at what all of these terms mean, and then we’ll investigate the benefits of uncalled capital commitments.

What is Committed Capital?

Imagine you’re an investor, or limited partner, in a commercial real estate business. You’ve agreed to commit $125 million. That is called committed capital. Basically, it is the total amount of money the LP has pledged to invest in a business over time. That money will be used to acquire or improve the real estate assets, for general property costs, or for other operating expenses.

What is Uncalled Capital?

Typically funds are not distributed all at one time. In the case of the above example, the general partner only needs an upfront capital payment of $25 million. That amount is known as the called capital. The rest of the commitment may remain uncalled, which means that investors are not immediately required to contribute that portion of their capital. In this example, the amount of uncalled capital would be $100 million. That would be the amount that investors still “owe” to the partnership, but it sits until needed.

What are the Benefits of Uncalled Capital Commitments in Commercial Real Estate?

Now that we understand what uncalled capital commitments are, we need to look at why investors might find them advantageous, and how Covercy can better leverage your uncalled capital to do more for you.

Earn Interest

Even though uncalled capital seemingly sits idle, it is anything but. In fact, let’s compare idle cash with uncalled capital.

• Uncalled capital refers to the amount of money that investors have committed to investing in a business, but has not yet been called upon by that business. In terms of commercial real estate, this could mean that the project is not yet underway or perhaps there is a waiting period while acquiring certain permits to begin improvements on a property. Uncalled capital is earmarked for the future, however.
• Idle cash is slightly different in that it refers to cash the business currently holds but is not actively using. It’s important to understand how to make the most of either your idle cash or uncalled capital. An investment management partner like Covercy can help you maximize the value of both through our partnership with third-party banking solutions. Funds in Covercy accounts can earn much higher interest rates than in other savings or checking accounts, so this is an important consideration when deciding where to safely keep your uncalled capital.

Flexibility

Some LPs might be attracted to investing in a partnership that requires a lower amount of called capital at the beginning. This gives them flexibility to invest their capital elsewhere until it is called. They can even accrue interest in an account with Covercy while they are awaiting a capital call. LPs are able to spread out their investment over time.

Curious about earning more revenue with your uncalled capital? You can always schedule a demo with Covercy now to unlock more flexibility in your investment — and start earning more revenue.

Distribution Payments

Depending on the fund, some GPs will even pay investors in distribution payments before eventually calling on LPs for the remaining capital. Since they may receive these distributions over time, LPs may even use these payments to cover their commitments.

For seamless distribution transactions, Covercy can help both GPs and LPs. We can streamline even the most complex transactions so that you can focus on your commercial real estate venture.  These distribution payments are also useful for maintaining the relationship between GPs and LPs, which is important to preserve especially when it is time for a GP to issue a capital call, meaning they will call upon the investor for the remainder of their capital commitment.

Covercy Helps to Maximize the Value of Uncalled Capital Commitments

With Covercy’s partnership with third-party banking solutions, we can help you better leverage the value of your uncalled capital. Our commercial real estate embedded banking services allow for revenue generation, as these FDIC-insured bank accounts earn a high-yield APY on uncalled capital. Just to put this in perspective, let’s say an investor has $5 million in committed capital that is sitting uncalled in a checking account. If that account is earning a 3.84% APY, the investor will have earned $192,000 in interest over the span of one year. Covercy’s CRE banking integration enables this additional source of revenue, so it’s something investors should take advantage of.

 

CRE Banking with Covercy is simple and efficient. Distribution payments can easily be made, while it is also easy for GPs to collect capital. This transparent and efficient system strengthens the relationship between GPs and LPs, leading the way for further growth. Best of all, you can tailor Covercy’s features to your real estate firm’s needs. Ready to earn more with your uncalled capital? Book a demo of Covercy now.