Preferred equity

Preferred equity is an ownership interest that ranks ahead of common equity for distributions and on a wind-up, usually carrying a fixed preferred return. It behaves between debt and common equity: more junior than debt, but senior to common shareholders.

Common in real estate joint ventures and capital structuring.

Preferred equity ranks ahead of common equity for distributions and on a wind-up, and usually carries a fixed preferred return that must be paid before common shareholders receive anything. Common equity sits last in the capital stack, bearing the greatest risk but keeping the full upside once other claims are met.

Preferred equity provides growth or gap capital without adding to the senior debt burden. Because it is ownership rather than a loan, it avoids fixed debt service and additional security over assets, while still giving the provider priority returns and protections. It is common in real estate joint ventures and capital structuring.