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LOS ANGELES-Necessity being the mother of invention, the market turmoil of the past few years gave birth to many creative solutions to the problem of illiquidity in a down real estate market. One of those solutions was the sale to opportunity investors of preferred equity interests in entities holding real estate.

By nature, opportunity investors typically want to reap their outsize returns within a relatively short time—usually just a few years, and the cost of these investments to the sponsor are usually sufficiently painful to incentivize the sponsor to retire or replace them as soon as possible. As the real estate economy continues its slow but steady recovery, we are now seeing the maturity of these investments, and thus the need or ability for sponsors to either buy them out or find more sustainably-priced capital to replace them.

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