Let's say you are an investor looking at an opportunity to capitalize either mezzanine debt or preferred equity to fund the development of an apartment building which will cost $100m. 65% construction loan, 15% mezz/pref, 20% common equity.
Whether you choose to capitalize preferred equity or mezzanine debt, the interest/pref rate is equal rate and accrue-pay, cash flow distribution priority is equal (fully senior to common equity), and either way you would not participate in the decision making process. Assume standard market-based legal documents with no inter-creditor agreement issues with bank.
Which structure do you choose and why? Thoughts?
