Real estate financing equity. In larger real estate deals where additional equity investors are needed, there is often a preferred layer of stock which guarantees a rate of return over the life of the deal. There is no maturity on this preferred, clearly making it an equity instrument. The rate of return varies, but it is higher than mezzanine debt and lower than pure common equity. This interest or return is often in the form of PIK, or payment in kind, to ease the cashflow burden. In the common stake, there are typically two kinds of investors. General partners, or GPs, and limited partners, or LPs. GPs retain smaller stakes, but are responsible for finding, arranging, and managing the deal. LPs are offered a hurdle rate, which divides the profits along the ownership stakes until an established return is met. Promoted interest is then retained by the GP to share in the upside after the hurdle rate is achieved. This promoted interest usually guarantees the GP a larger share of that upside than their pro-rata ownership proportion entitles them to. This type of tiering of equity is often referred to as a waterfall. In this example of preferred versus common, we see the preferred investment is 10% of the acquisition value, and those investors are guaranteed an 8% return. Assuming a five year hold, the preferred stock accrues value and is worth 8% compounded over five years, which will total 147. These holdings are generally PIK in nature as well, to preserve cash flow.