Workflow chain

Capital Stack Assembly

Produce a fully structured capital stack with sized senior debt, subordinate capital layers, and a JV equity waterfall that delivers levered returns meeting the fund hurdle, and maintain an ongoing refinancing decision framework through the hold period.

Trigger

Acquisition underwriting produces a base case proforma that meets the minimum unlevered return threshold and IC authorizes capital structuring, or an existing asset approaches debt maturity or a rate environment shift creates an opportunistic refinancing window.

The chain, step by step
  1. Build base case proformaAcquisition Underwriting EngineGate: Unlevered IRR must meet minimum return threshold before capital structuring begins.
  2. Size senior debt and compare lender termsLoan Sizing EngineGate: Do lender LTV, DSCR, and debt yield constraints leave sufficient equity return? If not, adjust structure or seek alternative lenders.
  3. Size subordinate capital layerMezz / Pref Equity StructurerGate: Is mezz or pref equity accretive to sponsor return after blended cost of capital? If not, exclude the layer.
  4. Architect JV equity waterfallJV Waterfall ArchitectGate: Are LP terms marketable at the proposed preferred return and promote structure? If not, revise or target a different LP profile.
  5. Synthesize and optimize full capital stackCapital Stack OptimizerGate: Does levered GP return meet fund hurdle after all capital costs? PROCEED to closing, RESTRUCTURE by looping to debt sizing, or KILL the deal.
  6. Analyze refinancing at maturity or opportunisticallyRefinancing Decision AnalyzerGate: Is net NPV of refinancing positive after prepayment penalty? REFI, HOLD current debt, or SELL and enter disposition chain.
How work passes down the chain

Step 1 passes stabilized NOI, property value, asset type, and proforma cashflows to loan sizing. Loan sizing output (senior debt amount) is required before mezz/pref runs, which determines true equity gap. JV waterfall uses final equity requirement from steps 2a and 2b. All three capital layer outputs feed simultaneously into the optimizer as a merged sources-and-uses payload. The optimizer output, including current stack terms and remaining loan term, becomes the baseline payload for refinancing analysis during the hold period.

Agents involved
acquisitions-analystcapital-markets-specialistchief-investment-officerdeal-team-leadic-challengerperspective-lenderportfolio-managerrisk-officer
What it produces and where it can break

Outputs

  • Base case proforma with unlevered IRR and stabilized NOI
  • Senior debt term sheet comparison matrix with LTV, DSCR, and debt yield constraints
  • Mezz or pref sizing with coupon, attachment and detachment points, and intercreditor term flags
  • JV waterfall model with preferred return, catch-up, promote splits, and clawback provisions
  • Optimized stack diagram with blended cost of capital and levered IRR by position
  • Refi scenario analysis with NPV comparison and breakeven timeline

Failure modes

  • Lender terms too restrictive to support target equity returns, forcing deal restructure or death
  • Mezz or pref cost exceeds accretion threshold, collapsing the blended return
  • LP promote expectations misaligned with market, stalling equity raise
  • Senior debt and subordinate capital assumptions modeled independently and produce an inconsistent sources-and-uses on optimization
  • Refi analysis triggered too late, with prepayment penalty eliminating NPV benefit
  • Rate environment shift between underwriting and closing invalidates loan sizing assumptions
Human approval gates
  • IC approval of deal economics before capital structuring begins
  • Lender constraint check after senior debt sizing
  • Mezz accretion test before including subordinate layer
  • LP marketability review after JV waterfall modeling
  • Final stack approval by IC or portfolio committee before proceeding to closing
  • Refi decision sign-off at maturity or opportunistic trigger
Example

A value-add multifamily fund targets a 225-unit garden complex at $42M. Underwriting confirms a 7.1% unlevered IRR. Loan sizing returns a $28M agency loan at 65% LTV. The $6M equity gap after senior debt and sponsor co-invest is filled with a preferred equity tranche at 10% coupon. The JV waterfall sets an 8% LP preferred return, 50/50 catch-up, and a 20% GP promote above a 15% IRR. The optimizer confirms a 17.3% levered IRR to the GP, clearing the fund's 14% hurdle. Three years in, NOI growth and cap rate compression support a cash-out refinancing that returns 40% of LP capital while keeping positive leverage.