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As Yields Tighten, More Real Estate Investors Are Exploring Preferred Equity Deals

The increased capital flowing to the preferred equity space far outweighs the volume of available deals.

Real estate investors looking for attractive returns along with added risk protection are finding it in the middle of the capital stack. Capital is pouring into the preferred equity space...

Competition squeezes rates

The biggest challenge for preferred equity investors is finding deals. “It is very competitive right now as a preferred equity provider to find investment opportunities that we like,” says Sam Isaacson, President of Walker & Dunlop Investment Partners (WDIP), the investment management arm of the commercial real estate finance firm of Walker & Dunlop. That competition is driving down returns for investors. In 2018 and 2019, WDIP was putting preferred equity out at 14 percent to 15 percent and now it is almost always generating returns that range between 8 percent to 12 percent.

WDIP invests in both preferred equity and mezzanine debt through two fund vehicles...

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