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Freddie Mac pref equity structures gain traction as rates squeeze proceeds

HousingWire reports preferred equity behind Freddie Mac conventional loans is being used to bridge loan proceeds gaps and preserve liquidity as more loans from the low-rate era approach maturity.

Reported · Written up by our desk · Mortgages

HousingWire reports proprietary preferred equity behind Freddie Mac conventional multifamily loans is increasingly being used as investors face tighter loan proceeds and elevated interest rates that complicate acquisition and refinancing plans.

Preferred equity sits between senior mortgage debt and common equity, and sponsors can use it to add capital without giving up meaningful control or committing to inflexible financing structures, while also aiming to preserve ownership economics.

According to HousingWire, many borrowers use the structure to reduce required common equity and to fund items such as capital expenditures, lease-up initiatives, value-add business plans, or recapitalizations, with demand rising as expected loan proceeds often fall short.

HousingWire also notes that the approach can help bridge financing gaps for deals while allowing investors to continue executing business plans and potentially capture future upside, as loans originated during the low-rate environment begin to mature.

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