Preferred Equity
Preferred equity is a hybrid security senior to common equity but junior to debt, offering fixed returns plus participation in upside, used to fill the gap between senior debt and common equity.
| Preferred Equity Terms | Structure |
| Seniority | Senior to common equity, junior to all debt |
| Preferred return | 10% to 15% cumulative or current pay |
| Participation | May participate in profits above threshold |
| Voting rights | Limited, except in default scenarios |
| Redemption | Redeemable at maturity or exit |
| Convertibility | May convert to common equity |
| Capital Stack Example | AED 10M Property |
| Senior debt (60%) | AED 6M at 5.5% |
| Preferred equity (20%) | AED 2M at 12% preferred return |
| Common equity (20%) | AED 2M, residual returns |
| Preferred priority | Receives 12% before common gets anything |
| Preferred participation | May receive 20% of profits above 15% IRR |
| Risk-return profile | Lower risk than common, higher return than debt |
Related Terms
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