Preferred equity

Preferred equity is capital invested into a development entity rather than lent to it, giving the provider a priority return and a preferential claim on project proceeds ahead of the developer's ordinary equity, without the same registered security position a mezzanine lender typically holds. It is often used to fill the same gap in a project's capital stack as mezzanine debt, and the choice between the two usually comes down to structure, tax treatment and how each party wants the return characterised, rather than the underlying economics. A preferred equity provider typically shares more directly in project upside than a mezzanine lender, in exchange for taking a position further from a registered security interest. Developers weigh preferred equity against mezzanine debt with their accountant and lawyer, since the right structure depends on the entity, the project timeline and how the capital stack is intended to unwind.⚠

Related

Mezzanine & preferred equity · Mezzanine finance · GRV