Preferred Equity for Multifamily

Just curious what folks are seeing out there in terms of pricing/terms for preferred equity positions.  I am specifically looking at value add multifamily, and seems like there is an abundance of pref equity investors in the market.  I have heard several stories of firms pitching JV equity when really they are doing mainly pref.

Using round numbers, assuming a $100 total capitalization with a $60M debt piece, is it reasonable to assume that a pref equity investor could come in for $20-$25M and reduce sponsor's requirement to $15M-$20M?

What sort of pricing is out there?  Would pref piece require all free cash flow to be swept to them during the hold period until they hit some hurdle?  Or could it be structured with a lower current pay coupon so sponsor could still generate some cash to them before a capital/sale event?

Real Estate Modeling Course

  • Real-life RE Modeling Tests from actual Interviews
  • Various asset classes including multi-family, commercial and more
  • Huge discount - until more tests and cases added

Comments (8)

Jun 11, 2021 - 8:09pm

Yes I am talking about 60% senior debt and then up to 80-85% LTC from preferred equity provider. 
 

I am just trying to understand if that tranche of capital is purely IRR driven, and would they go prorata on net cash flow during hold period or require that every dollar go to them until they hit their hurdle (ie sponsor gets nothing until capital event/sale?

Learn More

300+ video lessons across 6 modeling courses taught by elite practitioners at the top investment banks and private equity funds -- Excel Modeling -- Financial Statement Modeling -- M&A Modeling -- LBO Modeling -- DCF and Valuation Modeling -- ALL INCLUDED + 2 Huge Bonuses.

Learn more
Start Discussion

Total Avg Compensation

June 2021 Investment Banking

  • Director/MD (9) $911
  • Vice President (35) $364
  • Associates (203) $232
  • 2nd Year Analyst (115) $151
  • Intern/Summer Associate (97) $145
  • 3rd+ Year Analyst (27) $145
  • 1st Year Analyst (420) $131
  • Intern/Summer Analyst (338) $82