In commercial real estate, the capital stack is more than just a funding diagram—it’s the architecture of risk, return, and control. Whether you’re structuring a new development, acquiring a transitional asset, or refinancing a stabilized property, the composition of your capital stack will shape your exposure, your upside, and your ability to navigate change.
At Solomon Stanley Financial, we work with developers, sponsors, and investors to design financing structures that do more than close deals—they create strategic advantage. Understanding each layer of the stack—and how they interact—is essential for any real estate professional managing deals at scale.
The capital stack in real estate finance refers to the hierarchy of capital sources used to fund a project. It typically includes four primary layers: common equity, preferred equity, mezzanine debt, and senior debt. Each occupies a specific position in the repayment order and comes with distinct risk and return expectations.
Let’s break down each component, and explore how we help clients use them to their advantage.
Common Equity
Common equity sits at the bottom of the capital stack and represents the sponsor’s ownership stake. It’s the most exposed layer—paid last in any return of capital—but also carries the greatest potential upside.
Sponsors often contribute common equity as their “skin in the game,” which serves to align interests and unlock financing from senior lenders or equity partners. In high-leverage structures, the common equity slice may be thinner, but it still governs the sponsor’s control and share of profits.
At Solomon Stanley, we work with clients to determine the optimal equity contribution—balancing the need to preserve control with the opportunity to enhance IRR through responsible leverage.
Preferred Equity
Preferred equity is a hybrid instrument that sits between mezzanine debt and common equity. It typically earns a fixed return and may include participation features, but it ranks senior to common equity in the event of cash flow distribution or liquidation.
This layer is often used to fill funding gaps without increasing the project’s debt burden. Unlike traditional equity, it’s usually structured with negotiated rights, remedies, and a defined exit timeline.
We help structure preferred equity to complement the rest of the stack—ensuring it enhances, rather than constrains, sponsor flexibility and project economics.
Mezzanine Debt
Mezzanine financing is subordinate to senior debt but senior to both equity layers. It’s typically secured via a pledge of the borrower’s ownership interest and may carry an interest component, an equity kicker, or both.
Mezz is often used to reduce the amount of equity required from sponsors while preserving upside. However, poorly structured mezzanine debt can introduce friction with senior lenders or restrict exit options.
Solomon Stanley carefully models the cost, terms, and integration of mezzanine capital to ensure it serves the business plan, not just the balance sheet. We negotiate intercreditor agreements, repayment waterfalls, and conversion mechanics to protect long-term project health.
Senior Debt
Senior debt occupies the top of the repayment priority and is secured by a first lien on the property. It is usually the largest component of the capital stack, with the lowest cost of capital, and strictest underwriting standards.
Senior loans may come from banks, agency lenders, life companies, or private credit funds, depending on the asset type, sponsor profile, and desired terms.
Our role is to align the senior loan’s structure—amortization, covenants, prepayment terms—with the dynamics of the overall stack and the sponsor’s strategic timeline. A misaligned senior loan can introduce friction or limit exit flexibility. We ensure it integrates seamlessly into the broader financing strategy.
Why Stack Composition Matters
The capital stack isn’t static, it shifts based on market conditions, deal type, and sponsor profile. A well-structured stack manages risk exposure, protects equity, and enhances long-term optionality. A poorly constructed one can leave sponsors overleveraged, diluted, or boxed into rigid outcomes.
At Solomon Stanley, we don’t just fund layers, we design full stack strategies. That means:
- Evaluating how leverage impacts control and return
- Integrating equity partners or mezzanine capital with clear alignment
- Stress-testing stack composition under different market exit conditions
- Negotiating terms that allow the deal—not the debt—to lead
We help clients make decisions at the structural level, not just the transactional one.
Designing for Performance, Not Just Funding
A strong capital stack isn’t just about closing, it’s about operating. It must account for:
- Stabilization timelines and hold periods
- Market liquidity at take-out or recapitalization
- Control mechanisms in multi-party structures
- Flexibility to adapt to project delays or revenue shifts
That’s why our clients rely on Solomon Stanley not only to access capital, but to design it around the realities of development, leasing, and exit.
If you’re preparing to raise capital for a high-value deal or restructure an existing stack, our team is ready to help align your financing structure with your business plan, protecting both your equity, and your upside.
