Real estate capital stack explained
WHAT IS A REAL ESTATE CAPITAL STACK?
So, investors often ask, what is a real estate capital stack? A real estate capital stack comprises a first mortgage, common equity, and sometimes preferred equity or mezzanine debt.
A first mortgage is the primary loan used to buy a property; it takes precedence over the entire capital stack. When a first mortgage is obtained, the lender places a lien on the property, giving them the first claim to that property upon a sale or even a foreclosure. In other words, if the property is sold, the first mortgage is paid before any other mortgage liens.
Common equity is the amount limited partners (LP) and general partners (GP) invest in an asset. Unlike the first mortgage, if the property is sold, the common equity is the last to get paid off and is subordinate to the entire capital stack.
Preferred equity or mezzanine debt is sometimes utilized to bridge the gap between the first mortgage and the common equity. It is senior to common equity but subordinate to the first mortgage.
To summarize, if a property is sold, the first mortgage is paid off first, preferred equity or mezzanine debt is paid off next, and the common equity is last to get paid off. As a result, these investments have different return and yield metrics based on their respective positions in the real estate capital stack.
BAM Capital offers its family of investors access to premier real estate investment opportunities, transparent stewardship of capital, a means to achieve portfolio diversification, and tax-advantaged, long-term wealth creation. We’re a top-accredited investor company for HNWIs looking to offload stress and seek passive income from real estate investing. We have a proven track record and have worked with over 1,200 (and growing) accredited investors just like you.
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