Preferred Equity

Terms vary by lender, asset and sponsor. Combined leverage is the portal's current criteria for preferred equity, indicative only, and every deal is quoted on its own.

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 is why we size mezzanine and preferred equity side by side.

Because it is equity rather than debt, soft-pay preferred equity can sit behind a senior loan whose documents prohibit mezzanine. Hard-pay pref with a fixed redemption usually needs the senior lender's consent and may be treated as debt.

What preferred equity really costs

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 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.