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Capital Stack

By on August 6, 2019

The capital stack refers to the sequence of priorities different stakeholders have on a real estate project.

Those positioned in higher priorities would carry higher risks and therefore higher returns, while those at the lower end would carry a lesser risk with lower returns.

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The capital stack of real estate investments is typically arranged as follows, from top to bottom.

  • Sponsor equity
  • Preferred equity
  • Mezzanine financing
  • Second and subsequent mortgages
  • First mortgage
  • Real estate taxes

Understanding the capital stack of a project helps investors determine where they stand in a project, and their legal rights that accompanies their position in the hierarchy.

It would imply who has a higher priority, who gets payments first, and the order of priority should a project go into liquidation.

It should be noted that if taxes are not paid, there is always the possibility that a lien would be placed on the property. And the new owner would be liable for it should the project be sold or repossessed.


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