Preferred equity in commercial real estate is a type of hybrid financing structure that combines elements of both equity and debt financing. It is a relatively new concept in the world of real estate finance, and it offers several advantages over traditional debt and equity financing structures. In a preferred equity financing arrangement, the preferred equity investor provides capital to the project in exchange for a preferred return on their investment. This return is typically a fixed rate, and it is paid before any distributions are made to the common equity investors. The preferred equity investor also has the option to convert their investment into common equity in the future, allowing them to participate in the appreciation of the property. One of the key benefits of preferred equity financing is that it offers the project sponsor more flexibility in structuring the financing and managing their risk. Unlike traditional debt financing, preferred equity financing does not require the project sponsor to make regular principal and interest payments, which can reduce their cash flow and increase the risk of default. Preferred equity financing is also often used in situations where the project sponsor does not have enough equity to secure traditional debt financing, but they still want to retain control over the property. In these cases, the preferred equity investor provides the necessary capital, while the project sponsor retains control over the property and is responsible for managing the investment. Preferred equity in commercial real estate is a type of hybrid financing structure that offers several advantages over traditional debt and equity financing structures. It is a flexible and attractive option for project sponsors who want to secure capital while retaining control over the property and managing their risk. Meet our team of experienced commercial real estate financial advisors.