Real estate capital raising and syndication
What is a capital stack in commercial real estate?
Short answer
A capital stack is the full set of money that pays for a commercial property, ranked by who gets repaid first. Senior debt usually sits at the bottom, then mezzanine debt or preferred equity, then common equity on top. The higher the layer, the more risk it takes and the more return it expects. Exact terms differ on every deal.
How the layers line up
Think of a line at a counter. The capital stack shows who stands where when a property pays out or fails to. Every dollar that funds the purchase or build sits somewhere in that line.
A typical stack, from bottom to top, looks like this.
- Senior debt. The first mortgage or loan. It gets repaid first and usually earns the lowest return.
- Mezzanine debt or preferred equity. It sits in the middle. It takes more risk than the senior lender and asks for a higher return.
- Common equity. The sponsor and investors who put in the last dollars. They are paid last, absorb losses first, and keep the upside if the deal works.
Not every deal has every layer. Some are just a senior loan and equity. Others stack several pieces of debt and preferred money. The deal documents describe who is paid when, so many sponsors read them closely and talk to a securities attorney about how a structure is set up.
Why your place in line matters
Risk and return move together in the stack. The lower you sit, the safer your claim and the smaller your payout. The higher you sit, the more you can earn and the more you can lose.
I heard a clear example of this on a panel of family office investors. One of them described lending in the first position on small commercial properties.
This clip shows an investor explaining why they lend in first position on small balance commercial real estate.
"Right now, we're finding opportunities to lend at very high interest rates, first position in small balance commercial real estate."
First position means that lender stands at the front of the line on that property. The same panelist put the size of these loans at roughly 600 to 6 million and said lenders tend to chase only the much bigger numbers. That gap is why the smaller end can look different. It is one investor's view, not a promise of what you will find.
Where family offices tend to sit
At Family Office Club we talk with investors who want very different spots in the stack. Some want the steady claim of a senior loan. Others want common equity and accept the wait and the risk.
Real estate is a big part of what they do. Here is how I described it at one of our summit panels.
This panel opens with our member stats on how much of a family office portfolio goes into real estate.
Summary and key takeaways from this video
About 75 percent of our family offices invest in real estate. On average it is about 25 percent of their portfolio. So a real estate investor usually has other money working elsewhere and may choose a different layer of the stack for each deal.
If you are raising money, this matters to you. Before you pitch, decide which layer you are asking someone to fill. A lender and an equity partner want different things. If you describe the stack clearly, the investor can see where their money sits, what gets paid ahead of it, and what they would be giving up or gaining.
From my books and event talks
When I look at how wealthy families hold real estate, the split matters for anyone building a stack. In my experience, about 20 to 35 percent of their net worth sits in real estate, and sometimes as much as 40 percent. The average family I work with puts about 20 percent into development and 80 percent into cash flowing property. Most of them choose four to seven different real estate food groups. So when you pitch, expect the investor to compare your layer of the stack against several other kinds of real estate they already hold.
On the record
- About 75 percent of Family Office Club's family offices invest in real estate, and it averages about 25 percent of their portfolio.
- One panelist described lending in first position on small balance commercial real estate of roughly 600 to 6 million.
- I have run the Family Office Club community for 18 years and we have hosted 300 live events.
Sources
From Richard C. Wilson's Centimillionaire Strategies YouTube channel: Real Estate Investor Success Stories: Hear from 5 real estate investment firms who have raised $20M+, Sourcing Exclusive Off-Market Deals & Estate Planning | Family Office Investor Panel Insights. Quotes come from the video captions, lightly edited for readability. Figures are the speakers' own estimates and experience.
General education only. Not legal, tax or investment advice.
Talk to a securities attorney to explore options around capital stack structuring, offering documents and investor communications. Do not use AI to write your own legal agreements.
Next moves
- Write out every source of money in your deal and list them from first repaid to last repaid.
- Label each layer with its size as a share of the total cost.
- Decide which layer you are asking each investor to fill.
- Many sponsors talk to a securities attorney about how they describe the layers to investors.
- Bring a one-page stack summary to your next investor meeting.
More questions on this
Which part of the capital stack is the riskiest?
Common equity is the riskiest layer because it is paid last and takes losses first. It also has the most upside if the property performs.
Is mezzanine debt the same as preferred equity?
They sit in a similar spot between senior debt and common equity, but the form can differ. Mezzanine debt is usually described as a loan and preferred equity as an ownership interest, and many sponsors talk to an attorney about the terms.
Why should a sponsor raising capital care about the stack?
Investors want to know what gets paid ahead of them. A clear stack answers that quickly and builds trust in your numbers.
Related questions
- How do I raise money for my first apartment deal?Start with the deal, because a good one is far easier to fund than most first-time sponsors expect.
- How do I structure a real estate syndication for investors?Start with a clear split between sponsor and investors.
- How much of my own money should a sponsor co-invest?A sponsor should put in an amount that is meaningful to them, and there is no universal number.
- How do I raise capital for build-to-rent communities?Start with the exit.
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