In London’s competitive property market, understanding the real estate capital stack is essential for any developer, investor, or asset manager. The capital stack defines how a property deal is financed, outlining who gets paid first, who takes the most risk, and what the returns will be at each level of funding.
At Fraser Bond, we guide clients across the capital stack—helping structure property deals that balance leverage, security, and returns. Whether you're investing in a prime residential conversion or a mixed-use development in Zone 1, this guide explains everything you need to know.
What Is the Real Estate Capital Stack?
The capital stack refers to the hierarchical layers of financing used to fund a property transaction or development. Each layer comes with its own risk profile, return expectations, and repayment priority.
The standard structure includes:
1. Senior Debt – Lowest Risk, First Repaid
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Secured by a first charge on the property
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Typically provides 60%–70% of Loan-to-GDV or Loan-to-Cost
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Lower interest rate due to reduced risk
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Provided by banks, challenger lenders, or private institutions
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Default risk is lowest for senior lenders
2. Mezzanine Finance – Subordinated Debt
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Fills the funding gap between senior debt and equity
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Higher risk and interest rate (8%–14%)
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Often secured by a second charge
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Used to reduce equity contribution by the developer
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Fraser Bond brokers structured mezzanine solutions for high-leverage deals
3. Preferred Equity – Hybrid Instrument
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Sits between mezzanine and common equity
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Has fixed return terms but not always secured
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Offers priority returns over common equity holders
4. Common Equity – Highest Risk, Highest Reward
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Usually the developer’s own capital or private investors
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Paid last after all other stakeholders
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Entitled to remaining profits after debt and pref equity is cleared
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Exposed to full project risk and reward
Why the Capital Stack Matters for London Investors
Risk and Return Allocation
Each layer has a different exposure to project success or failure. Senior lenders take the least risk but receive fixed interest. Equity investors take on the most risk but can achieve outsized returns if the development performs well.
Funding Strategy
Capital stack structure determines:
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How much equity you need to invest
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What finance products you require
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Your control over the asset
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Exit scenarios and profit distributions
Fraser Bond helps structure capital stacks that reduce equity strain, optimise interest costs, and preserve control for the lead developer.
Negotiating Power
Understanding where you sit in the stack is crucial when negotiating with lenders, equity partners, or joint venture stakeholders. Fraser Bond advises clients on term sheets, return hurdles, and repayment sequencing.
Example: Capital Stack in a London Residential Scheme
GDV: £8.5 million
Total Cost: £6.2 million
Senior Loan: £4.6 million (first charge)
Mezzanine Loan: £750,000 (second charge)
Equity Input: £850,000 (developer and partners)
Term: 18 months
Exit: Sale of units and refinance
In this structure, Fraser Bond arranged stretch senior lending with subordinated mezzanine, minimising equity input while keeping exit strategies flexible.
Fraser Bond’s Capital Structuring Services
We support London-based developers and investors with:
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Senior debt sourcing from challenger banks and institutional lenders
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Mezzanine and preferred equity structuring
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Equity syndication for common equity placements
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Full capital stack advisory and negotiation
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Risk-return modelling and funding timelines
Whether you are acquiring land, developing luxury apartments, or refinancing a mixed-use asset, Fraser Bond ensures your capital structure is efficient, compliant, and aligned with your investment goals.
Conclusion – Secure Smarter Capital Structures with Fraser Bond
Understanding the real estate capital stack is essential for unlocking opportunities in London’s high-value property market. With expert structuring and strategic funding layers, investors can de-risk projects, preserve upside, and accelerate development timelines.
Visit FraserBond.com to arrange a confidential capital structuring consultation or access tailored finance for your next London development.
