Before You Apply, Let's Make Sure You Know What You Are Requesting
Preferred equity is similar to a second mortgage on a commercisal property. You own a $6 million shopping center, and you owe just $2.5 million against it. You need $1 million to convert a former K-Mart space into self-storage space.
You just can't go out and refinance the building because you have a defeasance prepayment penalty. You would have to pay a prepayment penalty of $850,000 just to borrow $1 million. You can't even put a mezzanine loan on the property because the first mortgage loan documents prohibit mezzanine loans. The trust that bought the first mortgage does not want the owner to have any additional loan payments.
A preferred equity investment is NOT a loan. Therefore it does NOT have any loan payments.
A preferred equity investment is a purchase of some of the membership interests (think of shares of stock) in a limited liabilty company (think of a corporation). The preferred equity investor only gets paid if the property is generating enough cash flow. Because the investment is preferred, the preferred equity investor gets paid first, right after the first mortgage payment, but before any of the other owners of the property can pull out a dime.
You can also use the form to the right to apply for a garden-variety second mortgage on a commercial property. Ideally your loan amount will be larger than $1 million, but loan requests as small as $500,000 will be considered.
Folks, please do not apply unless there is tons of equity in the property. This is NOT high loan-to-value mezzanine financing. We will seldom be able to help you on a purchase money deal. Preferred equity financing is generally only available when the first mortgage was obtained years ago, and the property has enjoyed substantial appreciation.