REE-4313 Lecture Notes - Lecture 7: Pari Passu, Preferred Stock, Capital Structure

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- Capital Structure
o In recent years, capital markets have become more
sophisticated more types of investment vehicles for a
more diverse set of investors
Senior mortgage debt
Mezzanine mortgage debt (mez financing)
Typically secured by stock in company, rather
than the property
Subordinate to senior debt
Preferred equity (money partner)
Similar to mez debt, but not secured by collateral
Precedes common equity in priority of claims
Common equity (entrepreneurial investor)
- Partnerships and Joint Ventures
o Risk sharing
o Combined Expertise with Capital
Investor (limited partner preferred equity)
Developer/operator/sponsor (entrepreneurial partner
common equity)
Brings operating expertise to the table
Common equity typically has no guaranteed or
contractual return
Common equity typically receives the residual
cash flows after the other more senior positions
are paid
o Sharing Cash Flow Operations
In Proportion
Pro rata pari passu distribution
Preferred Distribution
Preferred return
Disproportionate sharing
Cumulative vs. non-cumulative
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