Where does preferred equity position itself in a capital stack?

Preferred equity is a financing option that provides investors with a higher claim on assets and earnings than common equity but stands behind all forms of debt in the capital structure. In a typical capital stack, preferred equity is positioned above common equity, which means it has priority over common equity holders in terms of distributions, whether in cash flows or liquidation scenarios. However, it is subordinate to mezzanine debt, which is considered a form of debt financing that typically has a higher risk than senior debt but comes with a higher return potential.

Therefore, stating that preferred equity sits above common equity and below mezzanine debt accurately reflects its position within the capital stack. This understanding is essential for investors in real estate, as it informs them of the risk and return dynamics associated with different layers of capital.