1602.01A

Definitions

Requirements

Preferred EquityPreferred EquityA direct or indirect equity investment in an entity providing that investor with unequal rights to receive dividends, distributions, payments, or returns relative to other equity owners. is an equity investment in an entity where the holder is entitled to preferred dividends, distributions, payments, or returns relative to the other equity owners.

Fannie Mae defines 2 types of Preferred EquityPreferred EquityA direct or indirect equity investment in an entity providing that investor with unequal rights to receive dividends, distributions, payments, or returns relative to other equity owners. .

Type	Definition
Soft Preferred Equity	Preferred EquityPreferred EquityA direct or indirect equity investment in an entity providing that investor with unequal rights to receive dividends, distributions, payments, or returns relative to other equity owners. that: only requires preferred payments or returns to the holder if cash flow from the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is sufficient to make the payments or returns after satisfying the payment, reserve, escrow, and funding obligations of the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. and all PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). operating expenses; has organizational documents that explicitly state that the preferred return may accrue if cash flow from operations is insufficient to pay the return; and does not have a maturity date, redemption date, trigger date, or require repayment during the term of the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. .
Hard Preferred Equity	Preferred EquityPreferred EquityA direct or indirect equity investment in an entity providing that investor with unequal rights to receive dividends, distributions, payments, or returns relative to other equity owners. that requires preferred payments or returns to the holder, regardless of whether cash flow from the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is sufficient to make the payments or returns.

Type

Definition

Soft Preferred Equity

only requires preferred payments or returns to the holder if cash flow from the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is sufficient to make the payments or returns after satisfying the payment, reserve, escrow, and funding obligations of the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. and all PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). operating expenses;
has organizational documents that explicitly state that the preferred return may accrue if cash flow from operations is insufficient to pay the return; and
does not have a maturity date, redemption date, trigger date, or require repayment during the term of the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. .

Hard Preferred Equity

Preferred EquityPreferred EquityA direct or indirect equity investment in an entity providing that investor with unequal rights to receive dividends, distributions, payments, or returns relative to other equity owners. that requires preferred payments or returns to the holder, regardless of whether cash flow from the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is sufficient to make the payments or returns.