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.

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.

Development 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