Who this is for
- Developers with a gap above the construction loan. The senior lender will fund part of the cost and the sponsor can fund part; mezzanine or preferred equity fills the difference so you don’t have to give up control to a JV partner.
- Owners with a maturing bridge loan. A value-add property financed with floating-rate bridge debt may not refinance at today’s values and rates. Preferred equity can pay the senior loan down to a level that refinances, and can accrue rather than pay current to give the property cash-flow relief.
- Recapitalizations. Partner buyouts, construction completion, and other situations where the existing capital stack no longer works.
- Sponsors who want to keep ownership. Mezzanine and preferred equity carry a fixed or capped return, so the sponsor keeps the upside that a JV partner would share.
Mezzanine debt vs. preferred equity: what's the difference?
Both sit between the senior loan and the sponsor’s equity, and both are priced well above senior debt. The difference is legal form, and it decides which one your senior lender will allow.
- Mezzanine debt is a loan to the entity that owns the property, secured by a pledge of the ownership interests rather than by the real estate. It is governed by an intercreditor agreement with the senior lender. If it isn’t repaid, the mezzanine lender can foreclose on the ownership interests and take control of the property.
- Preferred equity is an investment in the ownership entity that is paid a preferred return, and its capital back, before the sponsor. Its protections come from the operating agreement, typically the right to take over management if the preferred return or redemption isn’t paid.
Many senior loans, including most agency multifamily loans, prohibit mezzanine debt but permit preferred equity on conditions. Which one fits your deal usually depends on what your senior lender will accept, so we start there.
What the market funds
Typical criteria among the mezzanine and preferred equity investors we have profiled in our weekly newsletter (2021–2025). Every deal is priced on its own merits.
| Check size | From about $1 million (family offices doing small-balance preferred equity) to $100 million and more (institutional funds) |
|---|---|
| Leverage | Combined senior and mezzanine or preferred equity commonly up to 75–80% of cost or value; some investors cap their last dollar at 75% of stabilized value, and land at about 60% |
| Return | Low- to mid-teens, as current pay, accrual, or a mix |
| Term | Typically 1 to 5 years, usually matched to the senior loan |
| Property types | Multifamily, industrial, student housing, self-storage, hospitality, retail, office, and land on a selective basis |
| Deal types | Ground-up construction, value-add and renovation, conversions, recapitalizations |
Where the capital comes from
Debt funds and mortgage REITs, family offices, real estate private equity funds, and special situations funds. Each has a different box — size, geography, asset type, and the kind of senior lender it will sit behind — and the box changes often. We track it so you don’t have to approach investors who won’t do your deal.
How the process works
- Send us the deal. Sources and uses, the senior loan term sheet if you have one, the budget or rent roll, and the sponsor’s track record.
- We size the stack. We test the ask against leverage, debt yield and coverage and tell you whether it will clear the market before anyone else sees it.
- We go to the right investors. We confirm each investor’s range first, then send the full package only to those whose criteria fit.
- We negotiate and close. We compare term sheets, negotiate terms and the intercreditor or recognition agreement with the senior lender, and manage diligence to funding.
Related reading
Need mezzanine or preferred equity?
Send us the deal and the senior loan terms. We will tell you what the market will fund and what it will cost.