Mezz Debt v. Pref Equity

Mezzanine debt and preferred equity are both types of capital that can be used in real estate financing. They are both forms of "hybrid" capital, meaning that they have features of both debt and equity. However, there are some key differences between mezzanine debt and preferred equity.

Mezzanine debt is a type of debt capital that is typically used in real estate financing to provide additional financing to a project that has already been partially funded by a senior loan. Mezzanine debt is typically subordinated to the senior loan, meaning that in the event of default, the mezzanine lender will not be repaid until the senior lender has been repaid in full. Mezzanine debt typically carries a higher interest rate than senior debt and may include warrants or other equity-like features.

Preferred equity, on the other hand, is a type of equity capital that is typically used to provide additional capital to a real estate project. Preferred equity is similar to a traditional equity investment, but it may have some additional features, such as a preferred return or the right to a specific percentage of the profits. Preferred equity is typically subordinated to both senior debt and mezzanine debt, meaning that in the event of default, the preferred equity investor will not be repaid until the senior and mezzanine lenders have been repaid in full.

Overall, the main difference between mezzanine debt and preferred equity is the type of capital they represent. Mezzanine debt is a type of debt capital, while preferred equity is a type of equity capital.