Pros/Cons - Mezzanine Debt vs. Preferred Equity
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?