Author: Lance Langenhoven

The Monterrey Maneuver: A Negotiation Strategy for Commercial Real Estate Deals

Commercial Real Estate | International Mortgage

While working as a commercial real estate broker in Texas, I had the pleasure of working with many Mexican clients. They were some of the nicest, most honorable people I’ve ever done business with—and many remain close friends today.

One client, a prominent developer from Monterrey, once shared a negotiation tactic with me while we were working on a deal. It worked brilliantly then, and I’ve since used this strategy many times to save clients (and myself) hundreds of thousands of dollars. To this day, I’ve never seen it written in a book or heard it from anyone else. In his honor, I call it The Monterrey Maneuver.

The Traditional Approach

Let’s say a property is listed at $12.5M.
You offer $9M.
The seller counters at $11.5M.
You counter with your “final offer” of $10M.
The seller counters again at $11M.
You finally suggest splitting the difference at $10.5M, and the deal closes.

That’s the traditional dance.

The Monterrey Maneuver Version

Same property. Asking: $12.5M
You offer: $9M
Seller counters: $11.5M
You really want to close at $10M, but instead of continuing the back-and-forth…

You call your agent a few days later and have them speak with the seller’s agent. Here’s the script:

“My client is very firm at $9M and has said he’s not increasing his offer. But, if your client is open to accepting $10M, I’ll do everything I can to convince my client to move. I just don’t want to push him up to $10M if he’s going to be countered again—that will frustrate him, and he may walk away. So please check quietly if $10M is acceptable. If it is, I’ll try to move my client.”

Most seller’s agents will come back with:

“Okay. My client said he’d take $10M if you can get your buyer there.”

Now your agent says:

“Great, thanks. Give me a day or two—my client’s still tough on this, but I’ll try.”

You wait a day or so, then “reluctantly” increase your offer to $10M, which is accepted immediately.

Result: You got the property for $500K less than the likely outcome with traditional negotiation.

🎭 Why It Works

  • It positions you as immovable, creating perceived risk of deal collapse.
  • Your agent becomes the “hero” who saves the deal.
  • The seller’s agent becomes a willing partner, helping you land the price you want.
  • The delay reinforces how hard it was to raise your price.

This strategy only works when you’re the sole buyer. Don’t try it in a bidding war. It’s most effective for overpriced properties sitting on the market for a while.

At America Mortgages, we specialize in helping foreign nationals invest in U.S. commercial real estate. We don’t just understand financing—we understand the strategy behind the deal. Many of us are investors and developers too.

So, whether you’re structuring your next acquisition or thinking through how to negotiate more effectively, let’s talk.

Lance Langenhoven
Head of Commercial Lending
📧 [email protected]

Why Is U.S. Commercial Real Estate Such a Low-Risk Investment?

U.S. Commercial Real Estate

In many European countries, signing a purchase agreement for a property must be accompanied by a 10% cash deposit. If you back out for any reason, you lose that money.

What?!!! Yes — that’s how it works in several markets.

While not every country operates this way, the U.S. commercial real estate process is refreshingly different:

  • You sign a purchase agreement
  • You place a much smaller Earnest Money (EM) deposit, typically around 1%
  • This deposit is held in escrow by a neutral title company, not paid to the seller
  • You’re usually granted a 30-day Feasibility Period (longer for vacant land), during which you can walk away
  • If you terminate the deal during this period, you typically receive most or all of your deposit back
  • Some states (like Texas) allow the seller to keep a small portion, often just 1% of the EM

This structure significantly reduces risk for the buyer, allowing you to fully evaluate the property before committing.

Who You Can Hire During the Feasibility Period:

  • Building Inspector – Checks code compliance and identifies major issues
  • HVAC Inspector – Tests heating/cooling systems and recommends repairs
  • Roof Inspector – Assesses the condition and identifies leaks
  • General Contractor – Estimates renovation or build-out costs
  • Drone Photographer – Great for large sites or remote plots
  • Civil Engineer / Architect – Ideal for land purchases to advise on zoning, design, drainage, fire safety, etc.

These inspections cost money, but compared to your total investment, it’s a small price to pay for confidence and clarity.

If you decide not to proceed, you can cancel before the Feasibility Period ends, recover your Earnest Money, and only be out the inspection costs.

Why U.S. CRE Makes Sense

This process makes investing in U.S. commercial real estate a comfortable, low-risk decision for experienced investors. You get time to assess the deal thoroughly, and you’re not locked in financially until much later.

Because of these protections, you can also move fast on a good deal. If something promising hits the market, “paper” it fast sign the contract, secure your place, and then use the next 30 days to decide if it truly fits your strategy.

In contrast, in markets where 10% down is immediately non-refundable, such flexibility is unthinkable.

This is exactly why I love investing in U.S. commercial property.

Let’s talk about your next deal — contact me today.

Lance Langenhoven
Head of Commercial Lending
[email protected]

Frequently Asked Questions

Q1: Why is U.S. commercial real estate considered low risk?

A: Because buyers typically pay only ~1% deposit, get a feasibility period to inspect the property, and have strong legal protections limiting upfront risk.

Q2: What is an “earnest money” deposit, and how much is it?

A: It’s a small initial deposit (often ~1%) held in escrow when you sign a contract, much lower than in many other countries.

Q3: What is a “feasibility period” and why does it matter?

A: A typical ~30-day window during which you can carry out inspections and cancel without losing your deposit, giving you time to assess and limit risk.

Q4: How does this process compare to commercial real estate markets abroad?

A: In many foreign markets, you might put down ~10% deposit upfront and cannot walk away, whereas in the U.S., you get more flexibility and less initial exposure.              

Q5: What practical steps should an investor take when buying U.S. commercial property?

A: Use the feasibility period wisely: hire building/roof/HVAC inspectors, contractors, and engineers to assess costs and condition, before committing fully.

Not Enough Cash for a Commercial Real Estate Down Payment? No Problem.

Commercial Real Estate Down Payment

You’ve probably heard the saying:

“Developers or investors never have any cash.”

Why? Because their capital is usually already tied up in other commercial deals.

So what happens when a great new deal suddenly pops up — maybe the exact kind of opportunity you’ve waited five years for — and you’ve only got 50% or less of the down payment on hand?

Do you miss out?

Not necessarily.

Enter: Owner Financing

In the U.S., owner (or seller) financing is a common strategy that allows deals like this to happen — especially when buyers are tight on cash but the fundamentals of the deal are strong.

Here’s how it works:

Example Scenario

Purchase Price: $2,000,000
Typical Bank Loan (80%): $1,600,000
Required Down Payment (20%): $400,000
Cash Available: $100,000
Shortfall: $300,000

Deal Structure Using Seller Financing

Bank Loan: $1,600,000 (interest-only for 18 months)
Seller Finance: $300,000 (interest-only for 18 months)
Buyer Cash: $100,000

This structure gives you control of the asset without needing the full 20% upfront.

You position the deal with an 18-month interest-only term to give you time to improve the property and raise rents. After 18 months, the bank loan converts to a fully amortizing loan, and the seller financing is paid off.

What Happens Next

You upgrade the property, increase rents, fill vacancies — and within 18 months, the NOI (Net Operating Income) increases enough to justify a new valuation of $2.4M.

You refinance:

New Loan (80% of $2.4M): $1,920,000

Pay off:

  • Initial bank loan: $1,600,000
  • Seller loan: $300,000

Leftover: $20,000 in cash back to you at closing.

You’ve executed a full turnaround without partners.

You controlled the asset with just $100K.

The seller helped you get the deal done.

Why It Works

This structure is a win-win.

Sellers are often willing to help bridge the gap — especially if the alternative is a lower sale price or no sale at all. And for buyers, it’s a way to move fast on a rare opportunity without giving up control or equity.

So next time you come across that deal you’ve been waiting for, and you’re short on cash — remember: you can still make it happen.

Let’s talk about your next deal.

Lance Langenhoven
Head of Commercial Lending
[email protected]

Frequently Asked Questions

Q1: What if I don’t have the full 20% down payment for a commercial property?

A: You can combine a bank loan and seller/owner financing so you don’t need the full down payment upfront.

Q2: How does owner (seller) financing work in this scenario?

A: The seller lends you the shortfall for a set period (e.g., interest-only for 18 months) while the bank covers the main loan.

Q3: Why is this combined structure advantageous for both buyer and seller?

A: The buyer moves fast on a deal with less cash, while the seller facilitates a sale that might otherwise stall or get a lower price.

Q4: What happens after the interest-only period ends?

A: You renovate or improve the property, increase its value (NOI), then refinance so you can pay off the seller note and move to a fully amortising loan.

Q5: Is this strategy only for U.S.-based investors or for foreigners too?

A: While the article focuses on U.S. commercial deals, the service provider also works with foreign nationals and expats for U.S. real estate financing.

NNN, NOI, and Cap Rate Explained: Real Estate Investing Basics

NNN, NOI and Cap Rate Explained

NNN, NOI, and Cap Rate are three of the most important metrics in U.S. commercial real estate investing. Whether you’re reviewing a retail, office, or mixed-use property, these numbers determine how cash flow, risk, and valuation are assessed.

For foreign nationals and first-time U.S. investors, misunderstanding these terms can lead to overpaying for a property or misjudging its true return. This guide explains what NNN, NOI, and Cap Rate actually mean, how they are calculated, and why they matter when evaluating U.S. real estate investments.

Why NNN, NOI, and Cap Rate Matter When Evaluating U.S. Properties

Let’s start with NNN.

This stands for Triple Net Lease, and it refers to a lease structure where the tenant, not the landlord, pays for three key property expenses: property taxes, building insurance, and maintenance / management costs. These are often referred to as the “three nets.” So, when you see “NNN lease,” it means the tenant is covering those costs, which leaves the landlord (you) with fewer ongoing expenses.

It’s also worth noting that these three costs are listed in order of priority. You can sometimes delay maintenance (not recommended), but you can’t delay paying property taxes. If you do, the county could take and sell your property to recover what’s owed.

Next is NOI, which stands for Net Operating Income.

This is one of the most important numbers in real estate. It’s calculated by taking your total rental income and subtracting all of your operating expenses—including those NNN costs if you’re responsible for them. What’s left is your NOI. It tells you how much money the property is actually making before debt payments and taxes.

Finally, we have Cap Rate, or Capitalization Rate.

This is a quick way to estimate the return on a property. Once you’ve calculated your NOI, you can figure out the Cap Rate by dividing that number by the purchase price of the property. For example, if a property produces $100,000 a year in NOI and the purchase price is $1 million, the Cap Rate is 10%.

Cap Rate = NOI ÷ Purchase Price

This gives you a snapshot of how profitable a property is right now. It doesn’t take future changes into account, like increased rents or renovation costs. For long-term planning and forecasting, you’d use a different metric called IRR (Internal Rate of Return)—but we’ll save that for another post.

If you’re just starting out, understanding these three terms—NNN, NOI, and Cap Rate—can give you a major head start when evaluating commercial real estate opportunities.

America Mortgages specialize in helping foreign nationals invest in U.S. commercial real estate, and we’re here to help you understand the financing process, the numbers, and the strategy behind each deal. We’re not just lenders—we’re active investors and developers ourselves.

So, give us a call and let’s talk about your next deal.

Lance Langenhoven

Head of Commercial Lending

[email protected]

Frequently Asked Questions

Q1: What does NNN mean in real estate?

A: NNN stands for Triple Net Lease. It means the tenant pays for the property taxes, insurance, and maintenance so the landlord has fewer expenses and more predictable income.

Q2: What is NOI, and why does it matter?

A: NOI (Net Operating Income) is the money a property earns after subtracting all operating costs like insurance, taxes, utilities, and maintenance.

It helps investors understand how profitable a property really is.

Q3: How do you calculate the Cap Rate?

A: The Cap Rate shows how much return you might get from a property.

The formula is simple:

Cap Rate = NOI ÷ Property Price

It’s a quick way to compare investment properties.

Q4: Why is the Cap Rate important for investors?

A: Cap Rate helps investors see if a property is a good deal.

A higher cap rate usually means higher potential return (and sometimes higher risk), while a lower cap rate means a more stable but slower return.

Q5: Why do many investors like NNN lease properties?

A: Investors like NNN properties because the expenses are mostly covered by the tenant.

This means the landlord enjoys steady income, fewer surprises, and easier calculations for NOI and Cap Rate.

The Difference Between Cap Rate and IRR

Some investors won’t move forward on a deal if the cap rate is too low. In some cases, they can’t even calculate a cap rate because there’s no income yet. A good example of that is buying vacant land for a future development.

Personally, I prefer to invest in deals where the IRR, or Internal Rate of Return, shows a potential return of at least 20% on an all-cash basis. If it’s a development project, I’m aiming for 30%. Even though I usually use financing, I always start with the all-cash IRR. It’s a reality check.

It’s really easy to get pulled into a deal just because the IRR looks great when financing is included. But the risk can be much higher than it seems, and if things don’t go as planned, you could end up dealing with a foreclosure.

So here’s how I approach it. If the all-cash IRR looks solid, I’ll then run a second IRR analysis using financing. That version will naturally show a higher return, but I already know the deal works without needing debt to make it pencil out.

Now you might be thinking: how is a strong IRR possible if the cap rate is super low, or even zero, on day one?

IRR Vs CAP Rate

Here’s the thing. Cap rate is just a snapshot of the property’s income at the time you buy it. It can’t see into the future. It doesn’t know what you plan to do with the property. Think of it like a still photo taken on closing day.

IRR, on the other hand, is like a video. It starts the day you close and continues through the full hold period, typically five years. It sees everything you’re planning to do.

For example, maybe you’re buying an apartment building that’s only 50% occupied. The IRR sees your renovation plan. It sees you increasing rents by 25% once the upgrades are done. It sees your improved management pushing occupancy to 95% within a year. And it sees continued rent growth year after year.

Eventually, the video gets to the point where you sell the property, now in excellent condition and in a highly desirable location—say, near the beach in California. Thanks to all the improvements, you’re able to sell at a strong price with a final cap rate of 5%. That’s why the IRR looks attractive, even though the cap rate at purchase didn’t.

Another thing to remember is that an IRR calculation always includes an exit event to complete the picture, even if you’re not planning to sell. A lot of investors refinance instead, pull some equity out, and roll it into the next deal.

So next time you’re evaluating a commercial property, don’t get discouraged if the cap rate looks weak. Focus on your business plan. Understand the upside. And work with someone who can help you run the IRR numbers correctly.

By the way, we love working with foreign nationals investing in U.S. commercial real estate. Not only can we help with financing, we’re active investors and developers ourselves.

Contact me today and let’s talk about your next deal.

Lance Langenhoven

Head of Commercial Lending

[email protected]

Frequently Asked Questions

Q1: What is Cap Rate and what does it tell me?

A: Cap Rate is a quick snapshot that shows what return a property might give you in its first year without considering mortgage or future changes. It’s calculated by dividing the property’s annual net operating income (NOI) by its purchase price or current market value.

Q2: What is IRR and how is it different from Cap Rate?

A: IRR (Internal Rate of Return) looks at the full picture: it estimates your annual return over the entire period you plan to hold the property. It accounts for future rental increases, expenses, and eventual sale things Cap Rate ignores.

Q3: When should I use Cap Rate vs when should I use IRR?

A: Use Cap Rate when you want a quick comparison for example, to compare several properties right now. Use IRR when you care about long-term profit: cash flow over time, changes in rent/expenses, and final resale value.

Q4: What are the limitations of Cap Rate and IRR?

A: Cap Rate doesn’t consider future changes rent increases, maintenance costs, mortgage payments, or sale price. IRR, while powerful, depends a lot on projections and which may not always turn out as planned.

Q5: Can Cap Rate and IRR be used together and why should I?A: Yes combining Cap Rate and IRR gives a more balanced view. Cap Rate helps you quickly see current yield; IRR helps you estimate long-term returns. Together, they help you decide whether a property is good now and has growth potential later.

Commercial Real Estate News: Stay Informed, Stay Ahead

Commercial Real Estate | US Expat Mortgage

If you’re planning to invest in commercial real estate in the USA, keeping a close eye on the news is absolutely essential.

Market dynamics change quickly—whether it’s interest rate shifts, zoning changes, new developments, or large acquisitions in your target area. Being plugged into the right news sources can give you an edge and help you make smarter, faster decisions.

Here Are Some Top Commercial Real Estate News Sources:

A mix of free and paid options, so you can choose what fits best:

Some of these platforms cover national trends, while others allow you to zoom in on specific cities or regions, which is especially valuable if you’re targeting a particular market.

Why This Matters (Especially for Foreign Investors)

If you’re a foreign national investing in U.S. commercial real estate, staying on top of local market news is even more critical. These platforms help you stay informed about:

  • Local developments
  • Investment opportunities
  • Legal and regulatory changes
  • Major tenant or landlord activity
  • Shifts in cap rates, rents, and valuations

Knowing what’s happening in the market—before others do—can help you move quickly on a great deal or avoid a potential pitfall.

We love working with foreign nationals investing in U.S. commercial real estate, helping them secure the financing they need to succeed. We’re not just lenders—we’re active investors and developers too, so we understand what it takes to navigate the U.S. market.

Contact us and let’s discuss your next deal.

Lance Langenhoven

Head of Commercial Lending

[email protected]

Frequently Asked Questions

Q1: Why should I follow commercial real estate news regularly?

A: Because the commercial real estate market changes fast interest-rate shifts, new developments, zoning changes, or big property sales can all affect values and opportunities. Staying updated helps you spot good deals, avoid risks, and make smarter decisions.

Q2: Which news sources are good for US commercial real estate?

A: The article mentions trusted sources like Bisnow, GlobeSt, CommercialSearch, ConnectCRE, BizJournals, TheRealDeal, and CommercialObserver. Some are free or require simple registration, others are subscription-based you can pick what suits your budget and needs.

Q3: Why is news especially important if I’m a foreign investor in US CRE?

A: Because market conditions legal regulations, local zoning decisions, tenant/landlord activity, cap rates, rents vary by city and region. For foreign investors, staying plugged into local news helps catch timely opportunities or spot regulatory or market shifts before they impact returns.

Q4: What kinds of information should I watch out for in CRE news?

A: You should follow:

New developments or construction projects in your target area

Major property sales or acquisitions

Changes in interest rates or lending environment

Regulatory or zoning changes

Trends in rents, vacancy rates, and cap rates

Large tenant or landlord activity

Q5: How can using CRE news give me an advantage over others?A: By being among the first to know about opportunities or risks. Good news coverage gives you early insight which helps you act faster than others. It can help you negotiate better deals, avoid bad investments, or pivot your strategy before the market moves.

Don’t Miss Out — Great Deals Don’t Wait Around!

US Mortgage Overseas | Loan For Foreign Property

Ever hear about someone else landing an incredible deal and think, “Why wasn’t that me?”

Well, I’m here to tell you—it can be you. You just need to be the one who’s ready.

The secret? Always be looking. Great deals don’t come with flashing neon signs or friendly heads-up calls. No one’s going to politely wait for you to clear your schedule and then let you know, “Hey, the best deal of the year just hit the market… take your time getting to it!”

Yeah… that’s not how it works.

So what is a “great” deal?

A great deal:

  • Offers the potential for significant profit in a short period
  • Is rarely on the market for more than a few days
  • Will be locked up fast—sometimes within hours

What’s not a great deal:

  • It’s been sitting on the market for months
  • It’s been seen by hundreds (or thousands) of potential buyers
  • It’s still available because everyone else has already passed on it

Timing is everything.

The best deals are often scooped up the same day they hit the market. You need to spot them fast, analyze quickly, and get your offer in. I’ve personally put deals under contract on day one—without even stepping foot on the property—because I knew my numbers and had confidence in the market.

Sure, this isn’t for beginners. But if you know your stuff, this is exactly how you land a winner.

So why would someone list an incredible deal?

It happens more often than you think. Here are a few of the usual suspects:

  • Death – The heirs want quick cash and have no idea what the asset is worth.
  • Divorce – Quick sale, fast cash, less hassle.
  • Debt – The owner is drowning in payments and just wants out.
  • Disaster – A major life event forces a sudden relocation or sale.

The point is, life happens—and sometimes that creates opportunity for the prepared investor.

Want to catch a great deal?

You’ve got to be scanning the market daily. Set alerts. Use platforms like CREXi.com to filter the types of deals you want. And be ready when opportunity knocks.

We love working with foreign nationals investing in U.S. commercial real estate, helping them secure the financing they need to close fast and with confidence. We’re not just lenders—we’re investors and developers too, and we understand what makes a deal work.

Contact me today and let’s talk about your next deal.

Lance Langenhoven
Head of Commercial Lending

Frequently Asked Questions

Q1: Why do great real-estate deals disappear so fast?

A: Because “great deals” usually don’t hang around long many are snapped up within hours or days.

Q2: How do I know if a property is worth acting on quickly?

A: If the price, location, and condition align with your goals and the numbers make sense it’s usually worth moving fast.

Q3: Why won’t “good deals” sit idle waiting for you?

A: Because no one is going to pause the market and wait for you. Offers come quickly, and if you hesitate, someone else will beat you to it.

Q4: What kinds of situations create these quick-sale opportunities?

A: Often big life changes like inheritance, divorce, debt, or urgent need for cash cause owners to sell quickly.

Q5: How can I increase my chances of catching a great deal?A: Keep scanning the market every day, set alerts, use reliable platforms to filter deals you want and be ready to act fast when something appears.

Bridge Financing: Fast, Flexible Funding for Commercial Real Estate

Bridge financing, as the name suggests, is designed to get you from where you are now to where you need to be.

This type of financing helps investors close commercial real estate deals quickly—especially when traditional bank loans are too slow or simply unavailable. You’ll also hear it referred to as hard money lending.

Why Use Bridge Financing?

Bridge loans are ideal for deals that need speed or flexibility—like value-add or turnaround projects. Because banks tend to be conservative, they often won’t lend on properties that are underperforming or need major improvements. That’s where bridge lenders step in.

These lenders are willing to take on more risk in exchange for a higher return. In other words, they’ll fund deals that banks won’t touch—because they know the investor is planning to improve the asset and boost its value.

What’s the Catch?

Since bridge loans come with higher risk, they also come with higher interest rates—typically 4 to 5 basis points (or more) above a conventional bank loan. But the upside? Most bridge lenders offer interest-only payments, which can help keep your monthly cash flow under control during the renovation or lease-up period.

Real-World Example

Let’s say you’re trying to buy a commercial property that’s only 60% occupied. You approach a traditional bank for a loan, but they reject the deal—it’s too risky, and they’re not confident in your experience as a sponsor.

But a bridge lender sees the opportunity. They’re able to close fast, helping you beat out competing offers. You lock in a 24-month bridge loan with interest-only payments.

You move quickly to renovate the property. Once it’s upgraded, you raise rents and boost occupancy. Now the property looks much more attractive on paper—and traditional lenders take notice.

After 12 to 24 months, you refinance into a long-term conventional loan with a much lower interest rate and 20-year amortization.

If the property’s value has increased significantly, you may even be able to pull cash out during the refinance—giving you capital to invest in your next deal.

The Bottom Line

Bridge financing is a powerful tool for investors who:

  • Need to close fast
  • Are acquiring properties that require repositioning
  • Can’t qualify for bank financing—yet
  • Plan to refinance once the property stabilizes

Used wisely, it can be the launchpad to your next big project. Just be sure to factor in the higher interest rates and have a clear exit strategy in place.

We love working with foreign nationals investing in U.S. commercial real estate, helping them secure the financing they need to make deals happen. And since we’re not just lenders—we’re investors and developers too—we understand the challenges you’re facing.

Give us a call and let’s discuss your next deal.

Lance Langenhoven

Head of Commercial Lending

[email protected]

Frequently Asked Questions

Q1: What is bridge financing for commercial real estate?

A: Bridge financing is a short-term loan used to get funding quickly often when regular bank loans are too slow or won’t work because the property needs work, is under-performing, or needs repositioning.

Q2: When do investors use a bridge loan?                                                  

A: Investors use a bridge loan when they want to buy, renovate or reposition a property fast, or if the property doesn’t qualify for a traditional loan.

Q3: How long does a bridge loan last?

A: Bridge loans are temporary typically for a few months up to 2 years enough time for investors to renovate, improve occupancy, or refinance with a long-term loan.

Q4: What makes bridge financing different from a regular bank loan?

A: Unlike regular loans, bridge financing is faster, more flexible, and often based more on the value of the property. However, it usually comes with higher interest rates because of the increased risk.

Q5: What should I watch out for when using bridge financing?

A: Because it’s short-term and riskier, bridge loans have higher interest rates and you need a clear exit plan (like renovation + refinancing or sale) to avoid financial stress.

The Capital Stack: What Every Commercial Real Estate Investor Needs to Know

Commercial Real Estate | US Mortgage

If you’re planning to invest in commercial real estate in the USA, understanding the Capital Stack is essential. It’s one of the most important concepts in real estate finance—and knowing how it works can help you close more deals, make smarter decisions, and ultimately protect your investment.

Let’s break it down.

What Is the Capital Stack?

The Capital Stack refers to the different layers of financing that make up a real estate deal. Each layer comes with its own risk, reward, and priority when it comes to how profits (or losses) are distributed.

From the top (least risky) to the bottom (most risky), the capital stack typically looks like this:

  1. Senior Loan
  2. Mezzanine Debt
  3. Preferred Equity
  4. Common Equity

Here’s how each layer works:

1. Senior Loan (Least Risk, Lowest Return)

This is typically a bank loan and has the highest priority in the capital stack. That means the lender gets paid first. Because it’s the most secure position, it usually comes with the lowest interest rate.

2. Mezzanine Debt

This comes after the senior loan in priority and is typically provided by non-bank lenders. It carries more risk than the senior loan, so it comes with a higher interest rate. Mezzanine lenders usually have the right to take over the senior loan if payments are missed to protect their position.

3. Preferred Equity

These are investors who put in capital but don’t have control over operations. They get paid after the debt is serviced, but before common equity holders. Because they’re taking more risk, they expect a higher return—often 10% or more.

4. Common Equity (Most Risk, Highest Potential Reward)

This is where you, the sponsor or active investor, typically sit. You’re the last to get paid—but if the deal performs well, you get the biggest upside. You’re also the first to take a hit if things go sideways.

Real-World Example

Let’s say you’re doing a $10 million deal.

  • A bank offers you 50% in a Senior Loan ($5M)
  • A private lender offers 20% in Mezzanine Debt ($2M)
  • You raise another 20% from friends, family, or investors as Preferred Equity ($2M)
  • You put in the final 10% as Common Equity ($1M)

Now the capital stack is complete, and you’ve got the funds to close.

But here’s the key: the deal has to perform well enough to cover everyone lower in the stack. That means paying the debt, preferred returns, and then having enough profit left for you as the common equity holder.

When Is This Structure Used?

A layered capital stack is most common in value-add or turnaround deals—situations where the property needs work, but you believe you can increase its value significantly.

For example:

You purchase a property with low occupancy, invest in renovations and better management, and increase occupancy to 90%+ over two years. Then, you refinance the property at its new, higher value—often at lower interest rates.

In some cases, you may be able to refinance for more than the original capital stack, letting you cash out some equity to reinvest into your next deal.

Important Reminder

Be careful not to over-leverage your deal. Too much debt might make your deal look better on paper, but it adds risk. If things don’t go perfectly, you could end up in default—or worse, lose the property entirely.

Want to Learn More?

Check out this in-depth guide to the capital stack:
👉 Everything You Need to Know About the Capital Stack

We love working with foreign nationals investing in U.S. commercial real estate—and helping them get the financing they need to succeed. We’re not just lenders—we’re investors and developers ourselves, so we understand what it takes to make a deal work.

Give us a call and let’s talk about your next deal.

Lance Langenhoven

Head of Commercial Lending

[email protected]

Frequently Asked Questions

Q1: Who gets paid first, and who gets paid last?

A: Payments go from the bottom layer up. Senior debt holders get paid first, and then mezzanine debt, then preferred-equity investors, and finally common equity investors, meaning common-equity holders get returns only after everyone else is taken care of.

Q2: Why does the capital stack matter for investors?

A: Because it defines risk vs. reward. The lower layers offer safety and steady payment. Higher-risk layers offer higher potential returns but also more chances of loss if the project fails.

Q3: Do all real estate deals use all the layers in the capital stack?

A: No, some simpler deals might use just senior debt + common equity. The full stack (with mezzanine debt or preferred equity) is more common in bigger or more complex projects.

Q4: What makes senior debt the safest part of the capital stack?

A: Senior debt is backed by the property and gets paid first. Because it has the first claim on the asset, it carries the lowest risk.

Q5: What is mezzanine debt in simple words?

A: Mezzanine debt is a “middle layer” loan. It’s riskier than senior debt but safer than equity, and it usually offers higher interest rates.