If the objection you're facing is with the project location, I'm afraid being either an LP or GP will change your investors’ minds.
What are the differences between preferred equity and joint venture equity?
I am considering arranging a joint venture (80/20 structure) for a commercial real estate project in Los Angeles. However, I am running into some issues with the JV partners because of the project’s location—their committees will not approve it. Would using preferred equity work better in this situation or would I get the same pushback due to the location? I have not used preferred equity in a deal like this before. Would the preferred investors require the IRR be split among them? What are the pros of preferred equity versus joint venture equity?
You would likely receive similar push-back if location is the reason they are not approving the transaction. Preferred equity is somewhat similar to mezzanine debt in that it is a different form of financing. There are many different options when it comes to structuring preferred equity financing, but it usually entails a higher preferred return and some limitation on deal upside. In sum, if location is the real issue, restructuring and revamping the capital stack may not be a workable solution.