Preferred Return

[Stephen Weber]

I met with a developer yesterday and during our meeting he stated a 40% “preferred” return to partners. That got my attention, and although I do not want to talk numbers here, the point is that he is looking for a loan to fund his deal. This morning I read his detailed proposal and see that the 40% return is over a two year period. That sounds misleading and I’m wondering if anyone in the world of development would present proposals that way.

[J Scott]

Originally posted by @Stephen Weber:

@JScott, I would take title to the property in second lien position.  Can't I make a loan and have an equity position?

I think you're confusing some things here...

If you take title to the property, you are owner (or part owner).  If you hold second lien position, you have a security interest in the property, but no ownership.  Which one is it (I don't imagine it's both)?

If you really have both an equity and a debt (loan) position in the property, you should be receiving two separate returns -- stated return for the debt position and a to-be-determined return for the equity position (dependent on the success of the deal).