Bridge Loan vs Preferred Equity: Senior Debt or Gap Capital
By Trevor Damyan, Commercial Mortgage Broker at Commercial Lending Solutions
Bridge loans and preferred equity solve different parts of the same problem: getting enough capital onto a transitional deal. A bridge loan is senior debt sized to roughly 70 to 80 percent of value. Preferred equity sits above a senior loan in the stack and pushes total leverage higher without refinancing the senior. They are sometimes alternatives and sometimes layered together, so the real question is where the capital needs to sit and what it needs to cost.
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Rate ranges reflect indicative pricing as of June 2026, sourced from active CLS CRE quote pipeline. Pricing is property, sponsor, and structure dependent.
When Bridge Loan Is the Right Call
A bridge loan wins when the total capital need fits within senior leverage and the sponsor wants a single, simpler instrument carrying the deal.
- Total leverage required is within the 70 to 80 percent range a senior bridge can reach
- There is no senior loan in place, so a new senior bridge is the cleanest solution
- The sponsor prefers one lender and one set of loan documents over a layered stack
- Renovation and interest reserve can be sized inside the senior bridge facility
- A faster, single-close execution matters more than squeezing the last dollars of leverage
When Preferred Equity Is the Right Call
Preferred equity wins when a senior loan is already in place or maxed out and the deal needs additional proceeds without disturbing the senior.
- An attractive existing senior loan is in place and refinancing it would be expensive or impossible
- Total proceeds need to reach 85 to 90 percent of cost, beyond senior leverage
- Gap capital is needed for acquisition, renovation, or a partner buyout above the senior
- The provider will accept an equity pledge and control rights rather than a property lien
- The sponsor wants to preserve common equity upside while filling a defined funding gap
How to Choose Between Bridge Loan and Preferred Equity
Start with the senior: if there is no senior or it can be refinanced cheaply, a single higher-leverage bridge is usually simpler and cheaper than layering preferred equity.
Size the gap: if a good senior is already in place and you only need the top slice of capital, preferred equity fills it without touching the senior.
Price the blended cost: compare the all-in cost of one bridge versus a senior plus preferred equity stack, and weigh the control rights the preferred provider will require.
A Real Decision in Action
A sponsor under contract on a transitional mixed-use asset had a favorable assumable senior loan but needed additional proceeds to fund repositioning. Rather than refinance the senior into a new bridge, preferred equity layered above it covered the gap, pushing total leverage near 88 percent while preserving the in-place senior rate.
All deal references anonymize borrower and lender identities and use city-level geography only.
If you do not have a senior worth keeping, a single bridge is almost always cleaner and cheaper. Preferred equity earns its higher cost when there is a good senior in place and you only need the top slice of the stack.
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