Preferred Equity vs Mezzanine Debt Calculator 2026
Preferred equity and mezzanine debt both sit between senior mortgage and common equity in the CRE capital stack — but legal treatment, returns, and remedy in default differ sharply. This tool compares the two structures side-by-side.
Capital Stack Position
Both pref equity and mezz debt sit between senior mortgage (40-65% LTV) and common equity (15-30%). Layer typically 10-20% of capital stack. Both are subordinate to senior debt and senior to common — but how they collect on default is very different.
Pref Equity vs Mezz — Key Differences
Mezz debt: collateralized by partnership interest (UCC), foreclosure faster (90-120 days), interest taxed as ordinary income. Pref equity: structured as preferred LP interest, remedies through partnership agreement (6-12 months), distributions taxed as qualified dividends/LTCG. Both typically yield 11-15% in 2026 environment.
When To Use Each
Pref equity preferred when: sponsor wants flexibility, tax treatment matters to investor, senior lender prohibits mezz. Mezz preferred when: faster default remedy is important, investor needs ordinary-income deduction offset, senior lender allows. Most large CRE deals use both in different tranches.
Source: NREI Capital Markets Report 2026, MBA CMBS Lending Survey 2025. Last updated: May 2026.