Preferred Equity Unveiled: How Family Offices Use Structured Investments to Control Risk

The Quiet Power Move: How Preferred Equity Is Reshaping Family Office Portfolios

In a capital environment where volatility is no longer the exception but the norm, preserving wealth while pursuing growth has become a balancing act. For family offices navigating this dynamic terrain, preferred equity has emerged as a powerful—yet often misunderstood—lever. It offers a unique way to structure real estate investments that mitigate downside risk, maintain strategic control, and deliver reliable, attractive returns.

What Is Preferred Equity—And Why It Matters

Preferred equity sits in a distinct position within the capital stack—senior to common equity but subordinate to debt. It’s not a loan, yet it holds priority over common equity when distributions are made. This positioning enables a tailored risk-return profile that’s particularly appealing to sophisticated investors.

What sets preferred equity apart:

• Priority of Payment: Returns are paid before common equity, offering a protective buffer.
• Customizable Returns: Often structured with fixed or hurdle-based yields.
• Control Provisions: May include veto rights, reporting access, or even operational influence—especially critical in volatile markets.

Why Family Offices Favor Preferred Equity

At Infinity⁹, we’ve seen a marked increase in family office interest in preferred equity across structured real estate transactions. Here’s why it resonates so deeply with their investment ethos:

1. Downside Protection First

Preferred equity prioritizes capital preservation. In the event of an underperformance or market correction, preferred investors are repaid before common equity, offering a meaningful margin of safety.

2. Strategic Influence Without Operational Burden

While not on the hook like lenders, preferred equity holders often secure certain governance rights. This allows family offices to protect their interests and align the sponsor's behavior with long-term outcomes.

3. Tailored Structures for Complex Objectives

No two families are alike, and neither are their capital needs. Preferred equity allows for bespoke structuring: cash-on-cash hurdles, cumulative returns, or conversion rights can all be customized to fit specific investment theses.

Infinity⁹ in Action: Preferred Equity in Practice

Case Study: Urban Redevelopment Deal in the U.S. Southeast

Infinity⁹ structured a $6.5M preferred equity investment in a multifamily redevelopment project alongside an institutional sponsor. The terms included:

• An 11% cumulative preferred return
• Quarterly distributions
• Downside protection via a minimum 1.0x return before common equity participation
• Limited operational rights: access to reporting and approval on major capital expenditure decisions

Outcome: Despite market softening in year two, our investor clients received uninterrupted distributions, and capital remained insulated from equity dilution or sponsor underperformance.

This deal exemplifies the power of structured capital in protecting wealth while still participating in market upside—an optimal match for family offices with multigenerational mandates.

Key Considerations Before Allocating to Preferred Equity

To harness preferred equity effectively, family offices should evaluate:

• Sponsor Alignment: Ensure your capital partner shares your values, especially around capital protection and transparency.
• Exit Strategy: Understand repayment timelines, triggers, and waterfall mechanics.
• Jurisdictional Risks: Cross-border deals require extra diligence on legal enforceability and tax treatment.
• Control vs. Return Tradeoff: Balance how much influence you require against the level of yield you’re targeting.

Conclusion: Control Risk, Not Just Capital

In today’s increasingly complex real estate landscape, preferred equity gives family offices what few other instruments can: risk-adjusted returns with structural control. It’s a disciplined way to move beyond binary debt/equity allocations and craft a capital position tailored to your strategic priorities.

Ready to Go Deeper?

Infinity⁹ specializes in bespoke preferred equity placements for family offices seeking resilient, high-quality opportunities. To explore how we can structure investments around your goals, reach out for a discreet consultation or subscribe to receive future insights.

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