Capital from Equity

Get Capital from Equity for Your Loan

Preferred equity refers to a type of capital infrastructure that places your investment in a priority position. This enables you to receive repayments from any cash flow or profit earned from a specific investment compared to other lenders. The lender's preferred equity position places them behind the repayment of a senior lender.

For example, a first or second mortgage from a traditional bank or lending institution but in front of other participant investors or sponsors.

Similar to your preferred stock, this equity security helps reduce some of the risk exposure associated with the preferred equity investor. This is because it places greater importance on the repayment of their equity above common shareholders or common equity investors. 

The preferred equity investors earn preference shares. These are typically higher in terms of rate of return compared to other lenders. The reason is that the lenders free at a slightly lower lien position than senior debt holders, which carries a higher level of risk.

How is preferred equity used in real estate?

You can use preferred equity financing with large property investments. However, only when you need additional funds beyond your senior loan from the bank.   So, instead of borrowing additional loan amount, from a different or multiple lenders, you can offer preferred equity to some investors and ask them to invest the extra money you need. 

In the work of finance, there are multiple layers of capital. You refer to them as a capital stack. This is because the sponsor and borrowers both stack different financing terms and conditions. They also set different positions for each other.