What is a Cap Stack?

A cap stack, short for capital stack, is the hierarchy of:

all capital financing a real estate transaction, organized from senior debt at the bottom to common equity at the top,

with each layer carrying different risk, return, and priority-of-payment characteristics.

How a Capital Stack Is Structured

The capital stack layers financing from lowest risk and lowest return at the bottom to highest risk and highest return at the top. Senior debt sits at the base with first claim on cash flows and, in default, first claim on the asset.

Mezzanine debt sits above senior debt with higher interest rates and subordinated claims. Preferred equity ranks next, offering a fixed preferred return before common equity participates. Common equity sits at the top, absorbing the most risk and capturing the residual upside.

Each layer is priced according to its position. Senior lenders accept lower returns because their claim is protected by the layers above them.

Why the Cap Stack Matters for Investors

An investor's position in the capital stack determines risk exposure, payment priority, and potential return. Two investors in the same property can have fundamentally different outcomes depending on whether one holds senior debt and the other holds common equity.

The cap stack also determines how distributions flow. The waterfall, the contractual order of payments, follows the capital stack hierarchy. Senior debt service is paid first. Preferred returns are paid next. Only after all senior claims are satisfied does common equity receive residual distributions.

Cap Stack in Tokenized Real Estate

Tokenization does not change the economics of the capital stack. It changes how ownership interests within the stack are issued, tracked, and transferred. A tokenized ownership interest still occupies a specific position in the hierarchy and still receives distributions according to the same waterfall.

What tokenization adds is transparency and granularity. On-chain records make the distribution waterfall auditable. Fractional ownership interests allow investors to participate at lower minimums than traditional private placements require.

Cap Stack at Node Proptech

Each Node offering discloses the full capital stack of the underlying SPV in the Private Placement Memorandum. Investors can review the debt-to-equity ratio, the presence or absence of mezzanine financing, the terms of any preferred return, and the waterfall structure before committing capital.