Question 1

What is the difference between a bridge loan and a permanent loan?

Accepted Answer

A bridge loan is short-term (12–36 months), typically interest-only, and designed for transitional properties. A permanent loan is long-term (5–30 years), amortizing, and requires stabilized cash flow. Bridge loans close fast and carry higher rates; permanent loans are slower to close but cheaper. Sponsors use bridge loans to execute a business plan, then refinance into permanent financing once stabilized.

Question 2

What is the difference between mezzanine debt and preferred equity?

Accepted Answer

Mezzanine debt is a loan secured by a pledge of the borrower's equity interest in the property. Preferred equity is an ownership interest in that same entity, structured to receive a preferred return. The key practical difference: some senior lenders prohibit subordinate debt (mezzanine) but permit preferred equity. Both sit between senior debt and common equity in the capital stack.

Question 3

When should a sponsor use preferred equity instead of mezzanine?

Accepted Answer

Preferred equity is used when the senior lender has a prohibition on subordinate debt in their loan documents, when the deal benefits from an equity-structured instrument rather than a creditor, or when the sponsor wants a partner with an equity-like alignment. Preferred equity can also be structured to avoid triggering certain CMBS or agency loan restrictions on mezzanine financing.

CRE Financing Comparisons

Bridge Loan vs. Permanent Financing

Mezzanine Debt vs. Preferred Equity

Hard Money Loan vs. Bridge Loan

Senior Debt vs. Mezzanine Debt

Co-GP vs. LP Investment

Bank Loan vs. Bridge Loan

Preferred Equity vs. Common Equity

Recapitalization vs. Refinance

Not sure which structure fits your deal?