Preferred Equity

Entity-level capital where second mortgages are not permitted

Preferred equity is an alternative to mezzanine finance where the senior lender prohibits second mortgages. Instead of taking security over the property, preferred equity investors take an equity interest in the project entity — a structure increasingly common with bank senior lenders.

Key Terms

Structure: Entity-level equity interest
LVR (effective): Up to 85–90% of GRV
Security: Share pledge / caveat
Return: Preferred return + profit share

Preferred equity vs mezzanine

Where a second mortgage is not permitted (typically because the bank's facility prohibits it), preferred equity achieves similar leverage through entity-level investment. The cost is usually higher than mezzanine, but the structure unlocks leverage that would otherwise be unavailable.

Best Suited To

Projects with bank senior debt that prohibits second mortgages
Developers seeking to maximise GRV leverage within the senior lender's constraints
Large-format projects where institutional preferred equity providers are active

Preferred equity provides entity-level development capital where second mortgages aren't permitted — stretching leverage beyond senior debt without a caveat.

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