By Matt Zisler, Head of Greystone Equity
Borrowers across the country are discussing the rise in preferred equity and how to prudently add it to their deals. The run on interest rates has created a need for borrowers to look to the investment product for additional proceeds behind their senior loan for the next acquisition or refinance. With preferred equity behind Agency loans on multifamily properties, borrowers are able to obtain the proceeds they need and have an equity partner whose return is fixed but senior to their return. Assuming the preferred equity investor’s return is fixed at a lower rate than the overall equity return, the result should be positive leverage to the borrower. Preferred equity investors should be seen as an equity partner and useful tool to prudently increase proceeds.
Institutional equity investors, reluctant to deploy traditional joint venture equity, are focused on preferred equity and better risk-adjusted returns. Preferred equity behind Agency loans typically detaches at 75-80% of total co