What is the typical LTV cap for alternatives?

The typical Loan-to-Value (LTV) cap for alternative real estate investments is often set between 50-55%. This conservative approach to LTV reflects the unique risks associated with alternative asset classes, such as niche markets or non-traditional properties like industrial or specialized facilities. Lenders tend to impose lower LTV ratios on these investments compared to more standard property types, as they may have less predictable cash flows and higher volatility.

The rationale behind setting the LTV cap in this range is to ensure that both lenders and investors maintain a cushion against market fluctuations and potential declines in property values. By limiting leverage, investors are better positioned to endure economic downturns while also demonstrating financial prudence that can lead to better loan terms or financing options.

In contrast, higher LTV caps associated with other asset classes are typically viable due to their more stable rental income profiles, making those investments less risky from a lender's perspective. Thus, the 50-55% range aligns with the cautious stance taken in financing alternatives, ensuring stability and risk management in the investment process.