Common equity is the developer’s own cash contribution to a property development project. It ranks last in the capital stack and absorbs the highest level of risk, as it is only repaid after all other capital—debt and preferred equity—has been settled. However, it also retains full exposure to any remaining profit, making it the most expensive and potentially rewarding form of finance. In UK property development finance, common equity is typically provided by the principal developer or project sponsor and plays a critical role in securing senior debt or mezzanine funding from external sources.
Within the Equity layer, common equity defines the residual ownership position that underpins the entire funding structure. It sits alongside Preferred Equity, although with a materially different risk and return profile due to its subordinated status and lack of fixed income entitlement. In practice, the rights and obligations of common equity holders are typically formalised through agreements involving an Equity Investor, including profit distribution waterfalls and control provisions. Ultimately, performance and viability are assessed against projected and realised outcomes, often benchmarked using Valuation Exit assumptions to determine profitability and capital return.
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