Menu
Preferred equity real estate provides investors and developers with flexible capital solutions that sit between debt and equity, helping finance commercial property projects with strategic advantages.
Preferred Equity Real Estate refers to capital that sits between senior debt and common equity in the capital stack. It gives investors priority distributions and contractual rights, but does not sit in a lien position like mezzanine debt.
Preferred equity providers commonly include private equity funds, real estate investment firms, family offices, and institutional investors.
From lowest risk to highest risk:
Senior Debt (Bank / Agency / CMBS)
Mezzanine Debt / Subordinate Debt
Preferred Equity
Common Equity (Sponsor Equity)
Preferred equity has higher returns than mezzanine debt, but lower return potential than common equity.
Preferred Equity Real Estate is negotiated directly within the borrower’s operating agreement (LLC, LP, Corp, Trust, etc.).
Instead of foreclosure rights, preferred equity investors receive protective covenants such as:
Distribution priority
Cash flow sweeps
Replacement or step-in rights
Voting rights on major decisions
Preferred equity can be pay current, pay accrual, or PIK depending on the deal.
Preferred Equity Real Estate is commonly used to:
Increase leverage beyond senior debt
Fill capital stack gaps
Fund acquisitions or recapitalizations
Execute value-add or construction business plans
Used heavily in multifamily, industrial, mixed-use, self-storage, hospitality, and office.
Common providers include:
Private equity funds
Real estate credit funds
Institutional investors
Family offices
Mortgage REITs
Syndicated capital sources
Developer acquires a $40M multifamily asset:
Senior Debt: $28M (70% LTC)
Preferred Equity: $6M (15% LTC)
Common Equity: $6M (15% LTC)
Preferred equity reduces the sponsor’s cash contribution and enhances leverage without violating senior loan restrictions.
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.
| Preferred Equity Term Sheet | |
|---|---|
| Loan Amounts | $1,000,000 up to $50,000,000 + |
| Max LTV | 90% |
| Terms | Up to 10 years, coterminus with senior mortgage |
| Amortization | Typically None, Principal in Kind |
| Recourse | Typically Non-recourse |
| Lending Area | Nationwide |
| Transaction Types | Acquistion, Refinance, Cash out, Bridge, Construction |
| Property Types | Multifamily, Office, Retail, Industrial, Hotels, Self Storage, Mixed Use, Mobile Home Parks |
Here are a few case studies to help illustrate how equity financing works with Clopton Capital. Preferred equity in real estate is used in all of these cases in one way or another to help investors reach their goals.
A real estate corporation and borrower came to us looking to acquire a $37 million apartment building in Washington State. The sponsor had a value-add acquisition plan that they intended to execute and was looking for a piece of preferred equity to round out their capital stack. We were able to structure an $8 million preferred equity piece from a private equity fund, that gave them a 75/25 equity funding split with a 4-year investment term. This allowed them to execute their business plan and conserve their own capital for other projects.
A developer representing a partnership wanted to get a higher cap stack position for a development venture that he was implementing in New York. His bank debt financing disallowed secondary financing secured by the project collateral, so he needed an alternative solution. We were able to structure a preferred equity piece with a private equity fund, getting him an 80% loan-to-cost arrangement without triggering any problem with his first mortgage lender. The deal allowed the developer to construct the project and conserve his own capital for other potential projects. Once the new real estate investment was completed, the partnership would be positioned to repay the subordination piece based on the higher property valuation.
| Feature | Preferred Equity | Mezzanine Debt |
|---|---|---|
| Security | Contractual / Operating Agreement | Pledge of Ownership Interests |
| Foreclosure Rights | No direct foreclosure | Yes (UCC foreclosure) |
| Priority | Junior to mezz, senior to common | Senior to preferred & common |
| Return | Higher | Lower |
| Control Rights | Step-in rights | Direct enforcement rights |
| Cost of Capital | Higher | Lower |
Secure gap capital for acquisitions, value-add plans, recapitalizations, and development. Nationwide coverage with competitive structures. Call 866-647-1650.
Preferred equity is a form of capital that sits between senior debt and common equity in the capital stack. Preferred equity investors receive priority returns ahead of the sponsor’s common equity and may negotiate control rights if performance or payment hurdles aren’t met.
Preferred equity is typically not secured through a mortgage lien like senior debt or mezzanine debt. Instead, it is protected through economic rights and negotiated remedies that may include cash sweeps, forced sale rights, or replacement of the sponsor if the project underperforms.
Preferred equity behaves structurally as equity but has economics and protections that resemble fixed-income instruments. Returns are paid before common equity distributions but after senior lender obligations are satisfied.
Preferred equity fills the gap between the senior loan (or mezzanine financing) and the sponsor’s common equity. Sponsors use it to increase leverage, reduce out-of-pocket equity requirements, or recapitalize an existing partnership.
Preferred equity is common in value-add, acquisition, recapitalization, and development projects across multifamily, industrial, office, hospitality, and mixed-use properties. Institutional providers generally target deal sizes from $10MM+ with preferred checks starting around $1MM+.
Chicago based Clopton Capital is a national commercial mortgage broker dedicated to matching borrowers interested in multifamily, industrial, commercial, & mixed-use real estate to lenders aligned exactly with their needs for asset-backed funding.
Commercial Insurance Products are offered through Clopton Insurance Services, LLC.
Clopton Capital © 2026 / All Rights Reserved
