What Differentiates Pref Equity from Mezz? - Pref Equity Vs Mezz


Posted February 21, 2023 by clearwater

Do you understand the difference between pref equity vs mezz? Learn more about the financial guidance Clearwater Capital Management can provide you by reading on.
 
No one can finance commercial real estate by going to a bank and getting the full amount covered. No bank will ever fully finance anything, no matter how good your credit is. There must always be a down payment and some form of security.

If you are a seasoned investor or work with one, banks usually provide senior debt financing up to 75% LTV of the property. Since mortgage debt gets precedence in repayment and the lowest interest rate when compared to other types of debt, it is considered senior debt.

Commercial real estate investors have a range of options for financing the last 25–20% of the project. When it comes to choosing between preferred equity and common stock, developers often want to rely as heavily as they can on mezzanine loans and preferred equity. This is true because common equity, despite being the riskiest investment, also has the highest rates and shares of after-tax earnings.

What sets preferential equity apart from mezz? The main distinction between mezzanine debt and preferred equity is that, as their names suggest, one serves as debt and the other as equity. Both types of financing are hybrid in that their aforementioned structures, which we'll go over later, incorporate both equity and debt components. But mezzanine financing is regarded as debt regardless of whether it originates from a public or private lender. The order of repayment follows senior debt, and the recall rights are structured differently than they are for preferred equity.

Clearwatercm.com is in charge of overseeing the financing for senior, subordinated, mezz, real estate, and preferred stock. They specialize in loan placement for pre-development, development, transitional, and stable properties across the United States because of their strong relationships in the real estate debt capital markets.

They are connected to a variety of institutional investors and limited partners who are ready to take a back seat in a direct purchase, joint venture, or discretionary fund to enable sponsors to successfully acquire or recapitalize assets. For information on commercial real estate debt, domestic and international financial possibilities, such as Mezz loan real estate debt funds, insurance companies, banks, and government-sponsored organizations, contact Clearwater CM.
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Issued By Clearwater Capital Management,LLC
Phone 917.750.7139
Business Address 430 Park Avenue New York, NY 10022
Country United States
Categories Finance , Loans
Tags pref equity vs mezz , commercial real estate debt
Last Updated February 21, 2023