The capital stack is the organization of all debt and equity used to finance a real estate transaction.

Here's what a capital stack is in simplified terms:

There may be more or less debt vs. equity used for any transaction, and the types of debt and equity can vary from one transaction to the next.

1. Senior Debt (least risky position).

Senior debt holds priority over all other positions in the capital stack. In other words, senior debt lenders are to be paid before any other investor is given a return on its investment. The senior debt in capital stack typically refers to the mortgage lender or some other debt holder who has the highest claim on the underlying asset.

2. Preferred Equity or Mezz

Preferred Equity functions like subordinate debt and receives a fixed return without any share of profits.

Mezz is next after all operating expenses and the senior debt payment have been made. For that reason, it is second to senior debt in order of payment priority and in its position in the capital stack.

3. Common Equity (riskiest position)

Common equity, which is the equity investment made by both the general partner (the sponsor) and limited partners (passive investors).

Common equity holds the lowest priority position and sits at the top of the real estate capital stack.

It is the last investment to be repaid, and will be repaid only if the others are repaid first. Therefore, common equity carries the highest risk but also offers the potential for the greatest reward.

These are just a few of the features that will be in our new Value-Add Multifamily Underwriting Model.

📈 After spending over a year building this extensive underwriting model, I am making this Value-Add Multifamily Underwriting Model available to purchase 9/1/23!

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That ratio is about on par with what the nation was seeing in 2011 and is a just few ticks above the 2019 showing closer to 21%.

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