In UK property development finance, the cost of preferred equity refers to the effective return developers pay to investors holding preferred shares. Preferred equity ranks above common equity but below debt in the financing hierarchy, often offering fixed dividends or priority payments. This cost compensates investors for taking on higher risk than lenders but lower risk than common shareholders. Understanding the cost of preferred equity helps property developers structure their funding efficiently, balancing investor expectations with project risk to optimise the capital stack and improve financial outcomes.
This sits beneath Equity Cost Metrics, introducing a more specific variant of the measure without changing its core interpretation. It is commonly considered alongside Mezzanine Cost of Capital, as both are closely related measures used to assess similar aspects of performance or risk.
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