Preferred Return and Preferred Equity are different concepts that are often closely related. Preferred equity refers to a specific position in the capital stack, senior to common equity and subordinate to debt. Preferred Equity gets paid out before Common Equity and is priced at a certain percentage return, called a preferred return. That return can be paid current out of cash flow, accrue, and be paid upon a sale, or a combo of both. Upon repayment of preferred equity, the remaining cash flow goes to common equity partners (through a distribution waterfall). Often, the first two tiers of the distribution waterfall are 1) the return of principal and 2) a different preferred return up to a threshold rate of return (8%, for example). These two tiers can be interchangeable, depending on the investment’s Operating Agreement. Generally, both the GP, or “sponsor,” and the LP (EquityMultiple and its investors) will receive a return of capital upon sale of the property, all other cash flow will go toward the preferred return, and then a portion of the remaining profits until both the GP and LP get to the 8% return threshold. Preferred equity investments always entail a preferred return. A preferred return hurdle may also be in play for common equity investments.