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Calculating Personal Finances By Hand

What Is Preferred Equity?

Preferred equity is a financial structure frequently used to finance commercial real estate.


[Updated: Apr 14, 2021 ] Oct 04, 2020 by Liz Brumer

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Sponsor $100,000 invested Gets paid last Lowest priority Benefits from remaining cash flow, appreciation, and tax benefits of owning real estate
Preferred Equity Investor $680,000 invested (can be combined from several investors) Gets paid second Secondary priority Earns a fixed rate of return from all revenues or cash flow earned each month or quarter in addition to possible equity share, often 7% to 12% or more, depending on the investment opportunity.
Senior Lender (Bank) $1,600,000 lent Gets paid first Highest priority Earns a fixed or variable rate of return that is often lower, 4% to 7%.

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