Q. What is a preferred return?


As the name suggests, a preferred return is a profit distribution preference whereby profits, either from operations, sale, or refinance, are distributed to one class of equity before another until a certain rate of return on the initial investment is reached. Typically, we see 8% most often. This is paid from 100% of the profits to LPs quarterly until they reach the 8% hurdle, or whatever the pref is for that investment, before any profit is distributed to the GPs.