Capital Stack

The Four Standard Layers (Bottom to Top)

1. Senior Debt — First mortgage. Lowest cost (5–8% currently). Highest priority. Secured by mortgage lien on property. Typically 60–75% of total deal value.
2. Mezzanine Debt — Second layer of debt. Higher cost (10–15%). Secured by equity pledge, not mortgage. Pushes total leverage to 80–85%. Subordinate to senior debt.
3. Preferred Equity — Equity with a preferred return (typically 8–12%) paid before common equity sees any distribution. No fixed maturity. Subordinate to all debt.
4. Common Equity — The sponsor and LP investors. Lowest priority. Highest target return (15–25%+). Receives whatever is left after all senior layers are paid.

Why Multiple Layers?

Each layer has a different risk/return profile that appeals to a different capital source. Senior debt providers (banks, life cos, CMBS) want low-risk, low-return capital. Mezzanine debt funds want medium-risk, medium-return. Preferred equity investors want predictable income with some upside. Common equity (the sponsor and LPs) wants the highest possible return and accepts the highest risk. Layering these provides the sponsor with the cheapest overall blended cost of capital while meeting each capital source's requirements.

How the Capital Stack Affects Returns

For the common equity, leverage amplifies returns — both up and down. A simple example:

• 100% common equity ($10M): 8% unlevered IRR
• $7M senior debt + $3M common equity: 12–14% levered IRR (positive leverage from senior debt)
• $7M senior + $1.5M mez + $1.5M common equity: 16–20% levered IRR (positive leverage from senior, near-neutral from mez)
• $7M senior + $1.5M mez + $1M pref equity + $0.5M common equity: 25%+ IRR for common (highest leverage)

The trade-off is risk: each layer above senior debt requires a deeper return on the underlying property to remain accretive to common equity. If the property underperforms, common equity loses first.

The Waterfall

In a sale or refinance, distributions follow the capital stack from bottom to top. Senior debt is repaid first; then mezzanine debt; then preferred equity (return of principal + accrued preferred return); then common equity, often with a waterfall that splits cash between LP and sponsor at predetermined hurdles. Understanding this waterfall is essential for evaluating sponsor pitches and joint venture economics.

Build Your Capital Stack

Balance senior debt, mezzanine, preferred equity, sponsor and LP equity to the dollar — the foundation of every lender, LP, and JV memo.

What is a typical capital stack for a value-add multifamily deal in Florida?

A typical FL value-add multifamily capital stack might run: 65% senior debt (CMBS or agency), 15% mezzanine debt, 5% preferred equity, 15% common equity. This produces total leverage of 80–85% and a common-equity target return of 18–22% over a 3–5 year hold. Exact structure depends on property quality, sponsor track record, and deal economics.

How does the capital stack affect lender requirements?

Senior lenders almost always require intercreditor agreements with any mezzanine debt, governing each party's rights upon default. Senior lenders may also restrict the use of mezzanine debt or preferred equity entirely (depending on program). Agency multifamily, for example, has specific rules about subordinate debt; CMBS varies by trust.

Who can help me structure a multi-layer capital stack on a Florida CRE deal?

Michael R. Linton at Linton Global Solutions and Linton Global Capital structures multi-layer capital stacks across Florida CRE — coordinating senior, mezzanine, preferred equity, and equity capital from active lenders and investors. Call (312) 612-1031.

Article Summary

Capital Stack is a foundational commercial real estate concept that Florida investors, owners, and tenants encounter routinely. The capital stack is the layered financing structure of a commercial real estate deal — typically composed of senior debt, mezzanine debt, preferred equity, and common equity, arranged from highest priority / lowest risk / lowest return at the bottom to lowest priority / highest risk / highest return at the top. Michael R. Linton at Linton Global Solutions applies Capital Stack to every Florida CRE transaction across multifamily, office, industrial, retail, hotels, NNN, distressed, and 1031 exchange execution — backed by 39 years of closed deal experience and REOMind.ai-powered analytics.

Key Takeaways

• ✓The capital stack is the layered financing structure of a commercial real estate deal — typically composed of senior debt, mezzanine debt, preferred equity, and common equity, arranged from highest priority / lowest risk / lowest return at the bottom to lowest priority / highest risk / highest return at the top.
• ✓Capital Stack is relevant across virtually every Florida commercial real estate asset class.
• ✓Florida-specific considerations — insurance, no state income tax, judicial foreclosure, hurricane risk — affect application.
• ✓Michael R. Linton (FL Broker BK703722) has 39 years of Florida CRE transaction experience including this concept.
• ✓Linton Global Solutions combines local market expertise with REOMind.ai's 96% valuation accuracy.
• ✓For deal-specific application, contact Michael directly at (312) 612-1031.

About Michael R. Linton

Michael R. Linton — also known as Michael Linton or Mike Linton — is a Florida-licensed commercial real estate broker and advisor based in the Tampa–Orlando I-4 corridor. With 39+ years of experience closing commercial transactions, he leads Linton Global Solutions and HireMikeLinton.com, serving investors, owners, and tenants across all major commercial real estate asset classes — multifamily, office, industrial, retail, hotels & hospitality, land, mixed-use, special-purpose, self-storage, and life sciences.

Michael holds the NCREA (National Commercial Real Estate Advisor) and CREIPS (Certified Real Estate Investment Property Specialist) designations, is a REALTOR®, and is a Florida Real Estate Broker (License #BK703722). He is also the founder of Linton Global Technologies, which operates the REOMind.ai AI-powered REO disposition platform serving 500+ banks.

Ready to Talk About Your Capital Stack Deal?

Get a free consultation with Michael R. Linton — 39 years of Florida CRE experience. Zero pressure.

Works Cited

1. Internal Revenue Service. "Tax Information for Real Estate Investors." IRS, https://www.irs.gov/. Accessed Jul 20, 2026.
2. Florida Department of Business and Professional Regulation. "Florida Real Estate Commission." Florida DBPR, https://www.myfloridalicense.com/. Accessed Jul 20, 2026.
3. NAIOP Commercial Real Estate Development Association. "NAIOP Research." NAIOP, https://www.naiop.org/. Accessed Jul 20, 2026.
4. Urban Land Institute. "ULI Research Library." ULI, https://americas.uli.org/research/. Accessed Jul 20, 2026.
5. Mortgage Bankers Association. "Commercial & Multifamily Research." MBA, https://www.mba.org/. Accessed Jul 20, 2026.

Disclosure & Compliance

Disclosure: This article discusses proprietary technology developed by Linton Global Technologies. Michael R. Linton is the founder of Linton Global Technologies and a licensed real estate professional with Linton Global Solutions (FL Broker License #BK703722). This content is for informational purposes only and does not constitute investment, legal, or financial advice.

Compliance Statement: All CREDDS and REOMind.ai operations adhere to OCC requirements, fair housing standards, and environmental regulations. Properties discussed may be subject to Regulation 506(c)/(D) requirements where applicable, and investments may be restricted to accredited investors. Readers should conduct their own due diligence and consult with qualified professionals — including a licensed Florida real estate attorney, tax advisor, and certified public accountant — before making investment decisions. Past performance does not guarantee future results.