iii. Financing Structures & Capital Stack

Financing structures and the capital stack describe how capital is arranged to acquire, develop, or operate real estate assets. These structures determine the priority of payments, allocation of risk, and distribution of returns among different capital providers.

Capital Stack

The hierarchy of capital invested in a property, ranked by priority of repayment and risk exposure.

Construction Loan

Short-term financing used to fund development or major renovation prior to stabilization.

Debt Financing

Borrowed capital that must be repaid according to defined terms, typically secured by the property.

Equity Financing

Capital invested in exchange for ownership interests and participation in returns.

Loan-to-Cost (LTC)

A ratio comparing total loan amount to total project development cost.

Loan-to-Value (LTV)

A ratio comparing loan amount to the appraised value of a property.

Mezzanine Debt

Subordinate financing that sits between senior debt and equity in the capital stack.

Preferred Equity

An equity position with priority return rights over common equity but typically without control rights.

Senior Debt

The highest-priority loan in the capital stack, typically secured by a first lien on the property.

Subordinate Debt

Debt that ranks below senior debt in repayment priority and carries higher risk.