Will Coleman and Mike Taravella Interview Rob Beardsley of Lone Star Capital Group
- Preferred Equity is a hybrid product which is subordinate to the senior loan but has payment priority over common equity positions.
- Benefits of Preferred Equity include: Sponsors and developers are provided with a higher degree of leverage at lower cost than common equity. For real estate investors it also provides opportunity to capture a fixed rate of return prior to payment and can sometimes include upside.
- Preferred Equity offers a hybrid risk/return profile. In addition to payment priority over common equity, it provides some recourse provisions in the case of borrower default.
- Recourse provisions can include force of sale of the property and even take over of the property when certain triggers are hit.
- Investors can be attracted to the preferred equity dues to its predictable annual returns and regular distributions of debt investments.
Expert Pro Tip: “Evaluate deals on a risk adjusted basis”
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