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Preferred Equity is very similar to mezzanine debt with regard to its pricing and pay structure. Sometimes mezzanine financing is not possible due to lender prohibition, prior encumbrances of the partnership interest or regulatory requirements. In these circumstances, preferred equity is a viable alternative. A preferred equity investment is a direct holding of equity interest in the property-owning entity. The preferred equity investor negotiates a recognition agreement with the underlying senior debt lender.
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