A Look into The Features of Preferred Equity Financing

1. A LOOK INTO THE FEATURES OF PREFERRED EQUITY FINANCING By Alyssa Reye

2. Preferred equity functions as a type of equity in real estate that aims to maintain a balance between common equity and senior debt, in terms of risks and rewards. Investors operating in the commercial real estate market often face difficulties when they are looking to gather the resources they need to buy a property. In such cases, it could be a lucrative idea to get preferred equity financing as this can help with the purchase and enable the investors to continue with their project. Learning about preferred equity will help you determine whether this form of financing is suitable for your project or not. Here we will have a closer look at the features of preferred equity so that you can learn about the best ways in which you can benefit from them.

3. Characteristic Features of Preferred Equity One of the hallmark aspects of preferred equity is that it sits between debt and common equity. This means that preferred equity can either be debt-like or similar to common equity. This inherent flexibility of this type of financing makes it suitable for a broad range of real estate projects. When Preferred Equity is Similar to Debt In many cases, preferred equity works in a way similar to debt, and professionals within the real estate industry refer to it as debt for multiple purposes. Here are some key similarities between debt and preferred equity.

4. Preferred equity involves a predetermined fixed rate of return called “non-participating” preferred equity. This is so because an investor normally does not take part in any kind of additional potential upside. Preferred equity requires a return which is considered a due. With preferred equity, investors get to explore extension options when more fees. With preferred equity, there is an obligation to provide the preferred return on some defined cadence, either monthly or quarterly. This is called “hard pay” preferred equity as the borrower is obligated to pay, no matter what the performance of an asset might be. There can be penalties, fees, and other serious consequences if the borrower fails to pay the amount of the current return when it is due. There is lower loss exposure for preferred equity in the capital stack. It has a pre-funded preferred equity reserve that can help to make payments. Compared to common equity, preferred equity involves lower targeted returns. If the borrower is unable to pay the senior loan, the nature of preferred equity helps investors protect their investment.

5. WHEN PREFERRED EQUITY IS SIMILAR TO COMMON EQUITY These are the basic similarities between common equity and preferred equity. There is no assurance of a payout and the distributions are determined essentially on the asset’s performance. It has a subordinate position to other debts in the capital stack when it comes to repayment. It offers potentially higher targeted returns compared to debt positions. CONCLUSION Getting all the information about preferred equity is the first step you need to take when you want to get this type of financing. If you are looking to find out more about preferred equity options, you should consult with Clearwater Capital Management. The company can also offer you a detailed look at the various aspects of the PACE DC loans.

6. Contact us info@clearwatercm.com https://clearwatercm.com/ 300 Park Avenue New York, NY 10022

7. THANK YOU