Preferred Equity
Quick answer
Preferred equity is capital that ranks junior to all debt but senior to common equity, earning a fixed return before the sponsor participates in profits.
Preferred equity is placed at the joint-venture level rather than being secured by the property, which means it usually does not require senior lender intercreditor consent in the way mezzanine debt does. It carries a fixed coupon, often partly accruing, plus priority on return of capital. Preferred equity commonly lifts total capitalization to 85–90% of cost and is the standard solution for construction gap funding.
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