Preferred equity vs. mezz for a value-add gap — how to choose?

Start with your senior lender's intercreditor posture, because it often makes the decision for you — many seniors will tolerate pref equity but fight a mezz loan that creates a second lien.

Beyond that: mezz is debt with a fixed maturity and foreclosure remedy; pref has no maturity but harder control terms on default. If your business plan timing is uncertain, pref's lack of a hard maturity is worth a lot. If it's tight and predictable, mezz is usually cheaper. Read the redemption and control provisions on the pref as carefully as you'd read a loan agreement.