Preferred equity fills the gap between the senior loan and what the sponsor can write — at 9% or more, often with a share of the deal attached. Ground lease capital fills the same gap from the bottom of the stack instead of the middle, and the differences compound for decades.
| Feature | Preferred equity | Ground lease capital |
|---|---|---|
| Annual carry | 8–12% current + accrual | Ground cap rate on land value — typically the cheapest layer in the stack |
| Ownership | Takes a slice, often with control rights | None. Sponsor keeps 100% of the upside above the rent |
| Maturity | Must be repaid or bought out, usually in 2–5 years | Never. Permanent capital with no refinancing event |
| In a downturn | Accrues, ratchets, and can take the keys | Rent stays fixed; cure rights protect everyone above the land |
| Source of repayment | The sponsor's future refinance | Not applicable — nothing to repay |
On a recent development we structured, replacing a planned preferred slice with land capital cut the sponsor's annual carry on that layer meaningfully — and erased a 40% dilution. The pref investor needed their money back in five years; the land never asks.
Usually, and the gap widens over time: pref compounds and accrues; ground rent grows at a fixed 2% per year. And pref must eventually be refinanced out with expensive money — the ground lease never does.
No. Rent is a fixed obligation sized off stabilized NOI. Every dollar of NOI growth and every dollar of appreciation above the rent belongs to the sponsor.
Yes, but you usually will not need to: the land proceeds typically shrink the gap enough that the remaining check is common equity the sponsor can write.
Send the stack and the stabilized NOI. We will show you the ground lease version next to the pref version, in real numbers, fast.
Email us the property