A preferred equity position at 9.5 percent current pay was written as first loss mezzanine
A structure worth examining. A 2.1 million preferred equity position on a 48 unit deal, 9.5 percent current pay, 18 month term with two six month extensions, written as first loss mezzanine sitting behind senior construction debt and ahead of the GP promote. That is not where preferred equity usually sits, and the reasonable expectation would be a fight over the waterfall. Sponsors in a tight construction financing market often take it without much pushback, which is itself the information worth carrying forward. The part worth turning over is what it means when a capital provider gets described as the cheapest money a group has deployed in four years. It can read as a compliment about sourcing, and it can just as easily be a statement about where rates went, because a 9.5 percent current pay coupon looks very different measured against 2021 debt costs than against today's. Both readings point at the same underwriting question, which is whether that price survives the next repricing of senior debt or whether it only existed inside the window it was written in.
