In one sentence
The layered structure of debt and equity financing a property, from senior debt at the bottom to common equity at the top.
The longer version
The capital stack orders claims on a property's cash flow and value: senior debt first, then mezzanine, preferred equity, and common equity, each with its own risk and return. Where a piece sits determines its priority and price.
Lenders care intensely about what sits above and below them in the stack, because it defines their real position if things go wrong.
Common questions
- What is the capital stack in real estate?
- The layers of financing behind a property, from senior debt with the lowest risk and return up through mezzanine debt, preferred equity and common equity.
- Who gets paid first in the capital stack?
- Senior debt first, then subordinate debt such as mezzanine, then preferred equity, then common equity, which absorbs losses first.
- Why does the capital stack matter to a senior lender?
- Because it shows how much capital is subordinate to the loan, and other layers come with intercreditor terms that affect the lender's rights.
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