Preferred equity

Preferred equity buys an ownership stake that gets its return before the common equity does. It isn’t a loan, so it doesn’t count as debt under most senior loans, but structured with a fixed return, a redemption date and takeover rights, it behaves like one.

What it costs in 2026

• Quotes: Altus Group’s Q2 2026 survey averaged a 13.57% all-in coupon for fixed preferred equity at 70% LTV and up, up from 13.19% in Q1 and 12.18% a year earlier. It is the only row quoted as an all-in coupon, and it rose while every spread in the survey fell.
• What holders earn: Arbor Realty Trust’s 10-Q for the quarter ended June 30, 2026 shows $202.1 million of preferred equity across 34 investments at a 6.87% pay rate but a 10.94% yield for the quarter, because part of the return accrues and is paid later. Its preferred equity sits between a 63% first-dollar and an 82% last-dollar LTV. BXP’s 10-Q for the same quarter reports $65.0 million of preferred equity it funded in a residential development joint venture, accruing at a 13.0% IRR.

Soft pay, hard pay, mandatory pay

Fannie Mae’s Multifamily Guide, updated for loans committed from June 2, 2026, now defines the three kinds, and they are a useful vocabulary for any deal:

• Soft pay: returns are owed only from excess cash flow while the mortgage is outstanding, and accrue if there isn’t any.
• Hard pay: the investor can take control of the borrower if required returns aren’t paid, whether or not there was cash to pay them.
• Mandatory pay: the investor can force a sale of the property if required returns aren’t paid.

Behind a Fannie Mae loan, any preferred equity has to go through Fannie’s Equity Checklist (Form 6441), and an investor with control takeover rights gets underwritten as a principal of the borrower. Other senior lenders ask for a recognition agreement for the same reason: their loan usually forbids a change of control without consent, and the preferred investor’s main remedy is exactly that.

Preferred equity or mezzanine?

Mezzanine gives the investor a faster, more certain foreclosure under the UCC; preferred equity gives the sponsor a structure that doesn’t trip “no other debt” covenants and can be soft pay. In the stack builder, the “paid currently” input controls how much of the preferred return comes out of cash flow each year; whatever isn’t paid accrues at the preferred rate and comes out of your sale proceeds.

Preferred equity is a security. Janover Capital, which runs this site, is not a broker-dealer and doesn’t raise or place it or take a fee for it; for preferred equity, the most we do is point you to people who provide it.