Capital structuring is the design of the funding mix — senior debt, mezzanine or subordinated debt, and equity, sometimes over a ground lease — used to acquire or develop a property. The structure sets the cost of capital, the risk each party carries, and whether the deal clears lender and investor thresholds.
The layers of a property capital stack
Each layer has a distinct claim and a distinct price:
- Senior debt — first-ranking and cheapest, but constrained by debt-service cover and loan-to-value
- Mezzanine or subordinated debt — fills the gap above senior, priced for the extra risk it carries
- Equity — the residual claim, carrying the highest risk and the highest return
- Ground lease — where relevant, a structural layer beneath the stack that changes how the whole thing is financed
What lenders and investors actually test
Thresholds are not printed on the application form. Debt-service cover is tested monthly through the refinance, not annually on averages. Loan-to-value is measured against modelled income, not the purchase price. Stress runs hit exit yield, voids and escalation at the same time — because that is how trouble actually arrives. What survives those tests is the equity cushion that makes the structure fundable.
Structuring for South African conditions
Every rand of capital here carries an emerging-market premium, so the structure has to earn its cost of capital honestly. Development finance institutions will participate where the framework fits, which changes what is possible on well-located, catalytic assets. The structure is matched to the asset class and the intended hold, not imposed from a template.
How Prizm structures capital
We build the stack, model it, and align senior lenders, mezzanine providers, DFIs and equity around a plan the credit committee will actually pass — with the assumptions documented and the downside quantified, so the numbers hold up under scrutiny.
Related reading
Common questions
- What is the capital structure of a real estate deal?
- It is the mix of funding used to acquire or develop the property — typically senior debt, sometimes mezzanine or subordinated debt, and equity, occasionally over a ground lease. The mix sets the cost of capital and how risk and return are shared between the parties.
- What are the main types of capital in a property deal?
- Senior debt (first-ranking, lowest cost), mezzanine or subordinated debt (higher cost, fills the gap above senior), and equity (residual, highest risk and return). A ground lease can sit beneath these as a structural layer.
- How is a property capital stack structured?
- By sizing the senior debt the asset can sustainably carry against cover and loan-to-value tests, filling the remaining gap with mezzanine and equity priced for their risk, and — where relevant — setting it over a bankable ground lease, so the whole structure clears lender and investor thresholds.
- What is DSCR and why does it matter?
- Debt-service cover ratio measures the income available to service debt against the debt payments due. Lenders test it through the refinance rather than on annual averages; it is one of the binding constraints on how much senior debt a property can carry.
Working on something that fits this?
A quiet conversation, first — no agenda beyond the outcome of the work.
Start a conversation →