$78,100,000 to go!

Preferred equity is the amount that you are paid for borrowing your invested capital. The interest paid on your invested capital can vary depending on what the sponsors of the deal are offering. The timing of how preferred equity is paid can also vary, for example if the cashflow being generated from a newly acquired asset is initially low the preferred equity payments may be accrued for a certain period of time until the cashflow is robust enough to start paying investors back their owed preferred equity. The below tables provide an example of how preferred equity is paid.

A commercial building just like any other building is slowly deteriorating. The paint starts to fade and the roof slowly gets worn down. The slow breakdown of the building is known in commercial real estate as depreciation, and it is assigned a dollar value. Depreciation just like preferred equity, and equity, can also be ”paid” out to an investor and can be a HUGE tax benefit to an investor who is looking to reduce their overall taxable income because depreciation reduces taxable income!

If you are in a 37% tax bracket and the depreciation we provide you reduces your taxable income by $100,000 it means that you will be taxed 37% less on that $100,000 of income. Of course everyones tax situation is difference so regardless please consult your tax professional.

Equity simply put is how much of the actual asset you own! So let’s say your investment of $100,000 buys you 10% equity in the building and when the price of the building goes up to $3,000,000 and we decide to sell the it, you are going to get paid 10% of the profit!

Cashflow simply put how much of the cashflow from a commercial property you get. So let’s assume our property generates $100,000 of net cashflow each year. If your investment in the deal gives you 10% cashflow then you will receive 10% of the $100,000 of net annual cashflow or in this case $10,000 annually. This $10,000 might be split up and paid monthly, quarterly, or annually.