Preferred Equity

Preferred Equity has similar economic traits to Mezzanine Debt with regards to pricing and pay structure. In situations where mezzanine financing is not possible due to; lender prohibition, prior encumbrances of the partnership interest or regulatory requirements, Preferred Equity is a viable alternative.

Unlike a Mezzanine loan, which is secured by the partnership interests of the borrowing entity, a Preferred Equity investment is a direct holding of equity interest in the property-owning entity. Additionally, rather than the Mezzanine lender’s inter-creditor agreement with the senior lender the preferred Equity investor negotiates a recognition agreement with the underlying senior debt lender.

Preferred Equity Capital Stack Notes

Development Preferred Equity:
  • Senior Preferred Equity will have an attachment point of 50% LTC +/- and a last dollar exposure of 65% LTC +/-
  • Junior Preferred Equity will have an attachment point of 65% LTC +/- and a last dollar exposure of 85-90% LTC +/-
  • Due to the common current pay requirement for Preferred Equity, the amount held back from proceeds will usually reduce the true Max LTC to 86-87%.
  • Pricing will tend to be in the low double to high double digits, with a possible equity kicker depending on first/last dollar exposure.
Long-Term Preferred Equity:
  • Senior Preferred Equity will have an attachment point of 55% LTC +/- and a last dollar exposure of 70% LTC +/-
  • Junior Senior Preferred Equity will have an attachment point of 70% LTC +/- and a last dollar exposure of 85-90% LTC +/-
  • Pricing will be in the mid-single digits on core and high single digits on lesser-quality assets. Low double digits for lower-quality / high LTC, Preferred Equity investments

We source, structure and help close Preferred Equity investments for the following situations:

  • Low-leverage Preferred Equity investments for core assets
  • Full/partial accrual pay options for transitional and development deals that go higher into the capital stack than traditional Mezzanine loans
  • Long-term, co-terminus preferred equity investments behind CMBS loans, where an intercreditor is challenging to obtain post closing
  • Participating Preferred Equity structures, where a lower preferred return is given in exchange for an equity kicker on the back end

We maintain ongoing relationships with a large variety of Preferred Equity Investors including:

  • Insurance Companies
  • Real Estate Funds
  • Crowdfunding Platforms
  • Private Equity Funds
  • Private Family Offices
  • Hedge Funds
  • EB-5 Regional Centers
  • Public and Private REITs
  • Investment Banks