Preferred equity in Real Estate
Preferred equity is considered a hybrid of common equity and debt investments as it shares characteristics unique to both.
Within the capital structure, preferred equity has higher payment priority to common equity, while subordinate to debt. This means that preferred equity holders will receive principal and any cash flows before common equity holders.
Key benefits
Higher payment priority
Preferred equity sits higher up in the capital structure compared to common equity. This means that in the event of liquidation or bankruptcy, preferred equity holders are paid back their principal and any cash flows before common equity holders.
Downside protection
Due to their higher priority in the capital structure, preferred equity investments offer some protection against potential losses. In the event of financial distress related to the investment property, common equity can serve as a “buffer” to cover any losses.
Equity-like returns but with less risk
Preferred equity tends to target similar returns to common equity with the added benefit of downside protection due to its priority in the capital structure.
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2 Represents an net annualized return, using an internal rate of return (IRR) methodology, with respect to the matured investments shown in your Portfolio experience, utilizing the effective dates and amounts of subscriptions and distributions to and from the investments, net of management fees and all other expenses charged to the investments.[read more]