A capital stack refers to the hierarchy of different sources of funding that contribute to the financing of a real estate project.
It represents the various layers of capital — each with its own risk and rate of return characteristics – contributing to a development's overall financial structure. The components of a capital stack typically include:
Senior debt
Mezzanine financing
Equity
Each occupies a specific position in terms of risk and repayment priority. Understanding the nuances of a capital stack is crucial for real estate professionals, investors, and developers, as it directly influences the project’s financial stability, risk profile, and potential returns.
Check out What is the Capital Stack for more details.