A preferred equity position originated by 3650 REIT illustrates how this type of financing is allowing acquisition loans and refinancings to move ahead. Diana Brummer, partner and co-chair of the Real Estate Industry practice in New York, is witnessing a rise in preferred equity activity. “The economic terms for preferred equity are much more debt-like [because] the preferred equity investor would get paid earlier than the common equity investor but with a capped return,” Brummer says to Real Estate Capital USA. “If you give debt investors the choice between a mezzanine loan and preferred equity, you’ll find some would actually rather go the preferred equity route.” Another consideration with preferred equity is, unlike mezzanine debt, there is no need to exercise foreclosure remedies in a distressed situation. Finally, preferred equity may be considered equity or debt depending on the tax purposes.