Preferred equity and structured debt instruments are filling the gap left by traditional CMBS and agency lenders as spreads widen and terms compress. The shift reflects a broader repricing of risk in the CRE debt market.
The Gap That Structured Products Fill
Traditional agency and CMBS lenders have pulled back meaningfully from risk segments where they previously dominated. Agency multifamily remains liquid but increasingly competitive; CMBS office and retail has effectively shut down; and bridge lending from banks has become more selective. Each of these pullbacks creates a financing gap that structured equity and mezzanine products address.
## When Structured Equity Makes Sense
Structured equity — typically a preferred equity or mezzanine position — makes economic sense when: - Senior debt can cover 60–65% of as-is value but the transaction requires 70–75% leverage - Sponsor equity is thin and needs a junior tranche to bridge to meaningful sponsor economics - The asset has near-term value creation opportunity that standard senior debt doesn't underwrite
The cost of structured equity is meaningfully higher than senior debt — typically 12–16% vs. 6–8% for senior — but when the alternative is leaving a deal on the table or over-concentrating sponsor equity, the spread is often worth paying.
Structuring Considerations
Borrowers should understand that structured equity positions are not universally available. Lenders in this space are selective, focused on deal quality, sponsor track record, and asset type. The market is liquid enough to access in most major metros and deal size ranges above $10M, but borrowers should expect a more complex due diligence process than conventional debt.
