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The Capital Stack Explained
The Capital Stack Explained
What You Need To Know - The Capital Stack
What You Need To Know - The Capital Stack
The Capital Stack refers to the different layers of financing that make up the total investment in a Development. It represents the hierarchy of claims investors and lenders have on the project's cash flows and assets.
TYPICAL CAPITAL STACKS
TYPICAL CAPITAL STACKS
Components of the Capital Stack (from lowest to highest risk):
1. Senior Debt – Lowest risk, lowest return.
2. Mezzanine Debt (or Subordinated Debt) – Higher risk, higher return than senior debt.
3. Preferred Equity (DSA Funding) – Higher risk, higher return than debt.
4. Developer Equity – Highest risk, highest return.
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- First in line for repayment.
- Secured by the project's assets.
- Often provided by banks or institutional lenders.
2. Mezzanine Debt (or Subordinated Debt) – Higher risk, higher return than senior debt.
- Sits between senior debt and equity.
- Often structured as a mix of debt and equity (e.g., convertible notes).
- Higher interest rates than senior debt.
3. Preferred Equity (DSA Funding) – Higher risk, higher return than debt.
- Gets repaid before common equity but after all debt.
- Profit-sharing agreements.
4. Developer Equity – Highest risk, highest return.
- Last to be repaid in case of liquidation.
- Represents ownership of the project or company.
- Investors earn returns through dividends and capital appreciation.
Development Sites Australia offers Preferred Equity for a profit split.
Could this unlock your next deal?
Apply now to find out.
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