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What is a Preferred Return?

A common feature of a real estate equity waterfall, the preferred return or “pref” can be particularly tricky for investors who are not familiar with its permutations. Not all prefs are calculated in the same way. In this article, we explain the different types of prefs and walk you through several examples to distinguish these prefs from other frequently conflated topics such as the “preferred equity” or “pref equity” position in the capital stack.