​What is a Capital Stack?

The Capital Stack refers to the total capital invested in a project. The stack is made up of the different layers of financing sources that go into funding the purchase and improvement of a property project.

 

In commercial real estate, the Stack is typically made up of:

 

Common Equity:  The top of the stack.  This layer contains the most risk of all the layers. When an investor invests in common equity of a project they are taking an ownership stake in the project. The risk here is greater because the project owners are repaid only after all the other positions in the capital stack are repaid.

 

Preferred Equity: This layer in the stack is another form of equity and is senior to common equity investments but still subordinate or lower in priority to debt. Preferred Equity investors receive prioritised payments before common equity holders, as well as some percentage share of the total capital gain of a project.

 

Mezzanine Debt: The first form of debt in the capital stack. Along with preferred equity, this category is considered to be a hybrid structure as it contains seniority to equity positions within the stack but is subordinate to senior debt. Mezzanine debt investors demand a higher rate of return than senior debt investors due to their unsecured position, meaning that it only gets repaid after all senior obligations have been satisfied.

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Senior Debt: The foundation of the capital stack, and typically the majority of the stack, generally secured by the property, which serves as collateral for the loan. The risk of this category is typically considered to be the lowest of all the layers in the stack due to its security interest in the collateral. Senior debt holders receive contractual ongoing interest payments before the investors in the higher layers in the capital stack. The relative security afforded to senior debt means it has the lowest level of reward when the interest payments are set.

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Each of these investment levels comes with their own risk and rewards (such as where they stand in the cash flow pecking order and repayment risk) and therefore commensurate interest rates for the borrower. Higher positions in the capital stack earn investors higher expected returns due to their higher risk.

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What Role does CapStack Play?

CapStack provides a platform for property buyers, developers and investors to connect with many lenders and their diverse product options in order to secure finance for their acquisition, project or investment.  This process has traditionally been completed in an old-school, offline manner. 

 

We have set out to use advanced technology to disrupt the world of commercial property finance and debt brokerage.

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We use data and transparency to connect commercial borrowers to commercial lenders based on their specific loan criteria, requirements, and lending parameters.

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CapStack’s network of diverse lenders assists clients in finding optimal financing solutions to meet their needs at any size.

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WE WILL HELP YOU FIND & COMPARE ALTERNATIVE LENDERS FOR YOUR PROJECT. START HERE.

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WHAT IS CAPSTACK CURRENTLY WORKING ON?

 

• An online portal when borrowers can view, compare, and contrast multiple indicative loan offers.

• A Lender Portal and Dealroom where lenders can review deals that match their lending criteria and submit indicative offers.

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Coming Soon. Stay tuned!

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For any further information please fill out the form below and we will get right back to you.

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