The capital stack is the full set of capital used to fund a business or project, ranked by priority of repayment and risk — typically senior debt at the bottom, then mezzanine or subordinated debt, then preferred equity, then common equity at the top. Each layer carries different cost, security and return.
Structuring the stack determines cost of capital, control and downside protection for each party.
Central to real estate finance, leveraged transactions and capital structuring.
The capital stack is the full set of capital used to fund a business or project, ranked by priority of repayment and risk — typically senior debt at the bottom, then mezzanine or subordinated debt, then preferred equity, then common equity at the top. Each layer carries different cost, security and return.
Central to real estate finance, leveraged transactions and capital structuring.
Senior secured debt sits at the bottom of the capital stack and is repaid first, followed by mezzanine or subordinated debt, then preferred equity, with common equity last. Each layer up the stack carries more risk, less security and a higher expected return than the layer below it.
How the stack is structured determines the overall cost of capital, who controls key decisions and how losses are absorbed if things go wrong. Blending cheaper senior debt with more expensive junior layers lets a sponsor fund more of a transaction while limiting the equity it must contribute.
Speak to a partner about how this applies to your transaction.
