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?

  • Donald Wen

    October 26, 2017

    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.

  • Brian Bullard

    October 18, 2017

    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.