Glossary definition
Preferred Return
A minimum rate of return that must be paid to one class of investor before profits are distributed to other parties in a joint venture or equity structure. In UK development finance, preferred returns typically range from 8% to 15% per annum and are paid to the equity investor ahead of any profit share with the developer.
Definition
A minimum rate of return that must be paid to one class of investor before profits are distributed to other parties in a joint venture or equity structure. In UK development finance, preferred returns typically range from 8% to 15% per annum and are paid to the equity investor ahead of any profit share with the developer. The preferred return compensates the investor for the higher risk of an equity position compared to senior debt.
See also
Closely related terms.
Equity
The developer's own capital contribution to a project, sitting at the top of the capital stack and bearing the highest risk but also receiving the residual profit.
Joint Venture
A partnership arrangement between a developer and a capital partner to deliver a property project, typically structured so the developer contributes expertise and management while the equity partner provides the capital.
Waterfall
The contractual mechanism that determines the order and priority in which project proceeds are distributed among the parties in a development finance structure.
Mezzanine Finance
A layer of debt that sits between the senior loan and developer equity in the capital stack, secured by a second legal charge on the property.
Further reading
Guides that touch this term.
Guide
The Capital Stack in Property Development: How to Structure Your Funding
A comprehensive guide to understanding and structuring the capital stack in UK property development, from senior debt through mezzanine to equity contributions.
9 min read readReadGuide
How Does Development Finance Work? A Complete Guide for UK Developers
A ground-up guide to how development finance is structured in the UK, covering loan mechanics, drawdown schedules, monitoring surveyors, and what lenders look for in your application.
5 min read readRead
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