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Build An Attractive Capital Stack

How to Build An Attractive Real Estate Capital Stack

Investors in each position of a capital stack are concerned with the make up, debt structure and source of funds that make up each portion of a real estate deal. At Revival Capital Solutions, when we work with investors to source funds we make the same recommendations we follow when building a capital stack.

What Is The Goal Of The Capital Stack In A Real Estate Investment Deal?

Minimize the risk of equity stakeholders while maximizing the return. As debt and preferred equity are paid off, owners gain equity and access to cash flows as returns on their investments.

Start With A Solid Equity Investor Team

  • Experience in real estate deal-making
  • Expertise and operational efficiency
  • Clarity about the market
  • Before targeting locations and properties to buy or build, you need to confirm your team has the sound decision-making to see and cultivate business opportunities in the real estate marketplace.
  • Determine investment dollars (percentages and gross) necessary to do what you want to.

High Value Deals:

To make owner’s equity go further, many investors add preferred equity to the mix – this money acts like debt so long as things go as planned. Still, if the project defaults, these investors can convert their shares to common equity and even take control of the business and property.

Target Senior Debt:

  • Senior debt is the lowest cost money in the deal
  • Banks will base their investment on cash flow calculated as DSCR

Fill The Gap:

  • Mezzanine debt costs more than senior debt, but it successfully fills a capital stack without over-diversifying equity stakeholders or overexposing a small number of stakeholders to risk.
  • The foundational principle in adding mezzanine funding to a deal is to balance risk vs reward. More equity means more loss if a deal fails. More debt increases cost of money.

Sourcing Capital For Your Real Estate Deal.

The experienced investors and brokers at Revival Capital Solutions can help you build your capital stack. We know who has experience in the field and the cost of money at each layer of your stack. We know the investors and the lenders. We can facilitate your deal from concept to the closing table. 

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