Preferred equity real estate financing is a close cousin to mezzanine lending with one big difference: the lender generally has no foreclosure rights and there’s no inter-credit agreement with the first lien financier. The preferred equity lender (most often a private equity firm) instead establishes contract remedies written into the operating agreement with the partnership, trust, corporation, LLC, Delaware Corporation, estate, or foreign national entity borrowing the money. This gives it the right to step into managing control of the business and exercise their remedies if and when certain stated eventualities arise.
How does preferred equity work?
Preferred equity definition: the sum of money that the homeowner chooses to pay before they even begin making mortgage payments. This kind of equity work allows homeowners to avoid defaulting on their loan, which means they can sell their home or refinance at any time.
Preferred equity real estate lenders
You can find preferred equity real estate capital lenders in the form of private equity firms. Private equity firms who deal in real estate preferred equity are typically investors that purchase real estate with their own money, but also accept money from limited partners. The most common form of preferred equity commercial real estate lending comes from private equity funds.
How is preferred equity used in real estate?
Our preferred equity real estate definition is as follows: a term to describe ownership that maintains some sort of control or decision-making power over the property and its profits and losses.
With preferred equity real estate capital, an individual would keep some percentage of their rights as a shareholder but still have the ability to sell their allocation at any time. With common equity, investors who purchase shares in property don’t have as much control over the look, feel and operations of said property as those with preferred shares. On top of this, as with other savings accounts, those who invest in preferred equity real estate usually earn more interest than those with common share price types. This type of investment can come from either government initiatives or private firms to incentivize first-time home buyers into purchasing real estate although it’s also used often by preferred equity real estate lenders.
Preferred equity real estate investors
A preferred equity investor is someone who does their real estate investing in an entity without ownership interest, or with a very small ownership interest when it comes to real estate preferred equity — in simple terms, this is the cost of preferred equity. Preferred equity investors are not entitled to all of the rights and privileges of shareholders, but they do have some entitlements, usually given by contract. In preferred equity real estate investing, including preferred equity in multifamily real estate or mezzanine financing with preferred equity structuring, this is all possible.
Preferred equity real estate example
Preferred equity in real estate is a term that refers to the decreasing risk of the investor as they move through different stages of their investment. It also refers to financing for real estate projects wherein preferred interests are usually granted with priority over common interests. Preferred equity gives the preference of the lender to lend an investor funds first before considering any other investments.
One example is when you buy stocks, you may purchase some with preferred stock, which means that your shares will be worth more than the ones bought without rights (common stocks). Preferred returns typically costs more because it costs more for lenders to issue them due to the risks involved. So if you’re not interested in taking on any additional risk, then stick with common stocks. Preferred equity real estate lenders use this method often.
We offer preferred equity real estate financing
Preferred Equity Funding is one option amongst many that Clopton Capital, a nationwide commercial mortgage broker, can arrange from a menu that also covers commercial mortgages, construction loans, cash out leveraging, refinancing loan vehicles, CMBS, bridge lending, and real estate private equity. If you are looking to raise anything from $1 million to $40 million and trust the fact that we have multi $ billion of closed deals to show over 10 years, Clopton is the advisor to call. We have a well-earned reputation for giving private investors, small/middle market real estate entities, and family offices direct access to the most competitive preferred equity funds and private equity firms in the USA. This is a direct path to negotiating the easiest preferred equity terms and lowest interest rates possible. We reach every city, town, and rural area from coast to coast, in every state throughout the USA carried along by close relationships with the most important commercial real estate lenders in the business.