Preferred Equity and JV Equity for Property Development

Where preferred equity sits

Preferred equity is an equity investment in the project entity with a priority return. It ranks behind all debt but ahead of the developer's common equity. Because it is not a mortgage, it can be used where the senior lender will not permit second-ranking debt.

Key terms

Ranking	Behind senior and mezzanine debt, ahead of common equity
Return	Priority return agreed up front, with terms set deal by deal
Control	Developer retains day-to-day control, with agreed protections for the investor
JV equity	Joint venture equity available for larger projects
Borrower	Established company, business or investment purpose

Preferred equity or mezzanine?

• Choose mezzanine when the senior lender permits a second mortgage and you want a fixed debt cost
• Choose preferred equity when second mortgages are not permitted, or when the structure needs equity rather than debt
• Choose JV equity when the project needs a larger equity partner and you are willing to share profit

What to send for indicative terms

• Property address and a short project or asset description
• Total development cost or purchase price, and current valuation if held
• Loan amount requested and the position in the capital stack
• Planning status (for example DA approved) and builder, if construction
• The exit: sales, refinance or settlement, with supporting evidence
• Borrower entity and a short summary of the sponsor's track record

Frequently asked questions