Preferred Equity

Terms vary by lender, asset and sponsor. Every number here is indicative and quoted deal-by-deal.

You don't choose between mezzanine and preferred equity, the senior lender does.

Whether a second lien is permitted determines the instrument. If the senior loan documents prohibit subordinate debt, the gap gets filled with equity instead, structured as a preferred return that sits ahead of the sponsor's common position but behind the senior loan entirely. That's the whole logic of this page in one sentence, and it's why these two overlays are evaluated together rather than separately.

Because it's equity rather than debt, preferred equity doesn't show up as leverage on the senior lender's covenants, which is exactly why it's the tool of choice when the senior lender's documents won't allow a mezzanine piece.

Preferred equity is cheaper than it looks, and more expensive than it sounds.

There's no DSCR test standing between the sponsor and the capital, which reads as flexible. But a preferred return cuts the common equity check ahead of the sponsor, and most structures carry control rights that spring into effect if the preferred return isn't met, board seats, approval rights, sometimes a forced sale. Sponsors who evaluate this purely on the headline return miss what they're actually giving up.

We walk through the trigger mechanics line by line before a sponsor signs, because the moment those control rights matter is exactly the moment the sponsor least wants to discover them for the first time.

Run the deal through the desk.

Underwriting and real options at no cost. A senior originator, not a queue.