Midwest investment banking firm NetLeaseX Capital announced that it would launch a preferred equity platform that would match investment funds and developers raise preferred equity from high-net-worth individual and family office investors.

"Preferred equity is raised through a newly-formed entity (like an LLC), which is owned by the Sponsor [fund or developer] and which takes title to real estate. The Sponsor's interest in the entity can be structured in several alternative ways that have in common the benefit of equity-like returns with a risk profile that is usually only available to debt investors," the company explains in a white paper.

The sponsors or general partners must have a subordinate position in the entity that is also in a first-loss position. "If the project underperforms, the Sponsor's and/or their co-GP's capital investments bear all of the losses before the NetLeaseX Investors' capital and preferred return are at risk," the paper explains. "In return for agreeing to be subordinate to the NetLeaseX Investors' capital, the Sponsors will receive a promote of approximately 30% of project profits."