Financing Gap
Closing the gap between conventional senior debt and the total capital requirement.
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STRUCTURED CAPITAL GUIDE
Structured Capital for Real Estate
A practical guide to combining senior debt, stretch senior, subordinated capital, preferred equity and other layers where conventional senior financing does not fully meet the capital requirement.
What is structured capital?
Structured capital is used when a real estate transaction requires a capital stack that cannot be solved efficiently with one conventional senior facility. The objective is to allocate risk and return across different layers while preserving a credible execution and exit strategy.
Structures can include senior debt, stretch senior, whole-loan financing, mezzanine or junior debt, preferred equity and sponsor equity. The right mix depends on leverage, cash flow, asset risk, business plan, sponsor equity, security and exit.
USE CASES
When structured capital can be relevant
Higher Leverage
Increasing total leverage where the business plan and risk-adjusted return support additional capital.
Development Top-Up
Adding capital above a senior development facility to complete the funding stack.
Complex Acquisition
Structuring multiple layers of capital around a time-sensitive or non-standard acquisition.
Recapitalisation
Replacing, resizing or reorganising existing debt and equity ahead of stabilisation, sale or refinance.
Sponsor Equity Optimisation
Balancing sponsor equity with preferred or subordinated capital while maintaining appropriate alignment.
UNDERWRITING
How structured capital is underwritten
Total Leverage
The combined debt and quasi-equity burden relative to current value, cost and projected value.
Senior Position
Terms, covenants and security of the senior lender determine what can sit behind or alongside it.
Cash Flow
Current and projected cash flow and the ability to service interest, preferred returns or other capital costs.
Sponsor Equity
The sponsor contribution, timing and alignment remain important even when leverage is increased.
Security & Ranking
Intercreditor arrangements, ranking, control rights and enforcement mechanics are central to the structure.
Exit
Repayment and take-out assumptions must work for each layer of the capital stack.
CAPITAL STRUCTURE
Common layers in a capital stack
EXECUTION
Structure first, then select the capital providers
Structured capital is most effective when the financing requirement is designed as one coherent capital stack rather than a collection of disconnected funding sources.
KSCG assesses total leverage, security, cash flow, sponsor equity and exit before identifying providers for each layer. Where multiple capital providers are involved, intercreditor terms and execution sequencing can be as important as headline pricing.
LENDER READY
Information required for a structured capital process
Capital Requirement
Clear sources and uses showing how much capital is needed and when.
Senior Terms
Existing or proposed senior financing terms, covenants, security and consent requirements.
Valuation & Cost
Current value, acquisition cost, capex, total development cost and projected value where relevant.
Cash Flow Model
Operating cash flow, interest burden, preferred return and downside sensitivities.
Sponsor Position
Sponsor equity, track record, guarantees and alignment with the proposed structure.
Exit Analysis
Sale, refinance or stabilisation scenarios demonstrating repayment of every capital layer.
FAQ
Structured capital questions
Is structured capital the same as mezzanine debt?
No. Mezzanine is one form of structured capital. A structured solution can also use stretch senior, whole-loan, junior debt, preferred equity or combinations of several layers.
Why use preferred equity instead of more debt?
Preferred equity can be relevant where additional debt would breach lender covenants, security constraints or debt-service capacity, while the sponsor still wants to reduce ordinary equity requirements.
Does higher leverage always mean better sponsor economics?
No. Additional leverage can increase financing costs, controls and downside risk. The appropriate structure depends on risk-adjusted returns, cash flow, exit resilience and sponsor objectives.
Can structured capital be used for both development and investment assets?
Yes. It can be relevant for development, acquisitions, value-add, portfolio transactions, recapitalisations and other situations where the capital requirement is more complex than standard senior lending.
RELATED
Structured Capital
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