Preferred Equity investments in a junior position behind senior debt, but senior to the Sponsor’s investment and Joint venture equity. Preferred equity investors are typically structured with two forms of return. There is an annual payback, the “preferred return”, a return paid by the sponsor at a negotiated rate. There is also typically a payback from the profits after a sale or refinance at the end of the project term. Both the preferred return and the “kicker” at the capital event are typically capped at a certain return percentage, leaving the majority of the upside to the Sponsor and common equity partners, but offering the security of predictable annual returns and less downside risk by comparison.