Definition: A capital stack is the combination of debt and equity used to fund a senior living development, ranked by who gets repaid first and who takes the most risk. Senior debt sits at the bottom with the lowest risk and cost. Mezzanine debt and preferred equity sit in the middle. Common equity from the sponsor and investors sits at the top, taking the most risk in exchange for the highest potential return.
The largest and most secure layer, repaid first and typically secured by a first lien on the property. It usually carries the lowest cost. Sources include construction loans from banks and other lenders, HUD Section 232 programs, and — after stabilization — permanent financing such as agency (Fannie Mae and Freddie Mac seniors housing), HUD, or bank loans. See senior housing construction financing for more.
A subordinate loan, often secured by a pledge of the ownership interests rather than the real estate, used to fill a gap above the senior loan. It is repaid after senior debt and before any equity, so it carries more risk and a higher cost.
Equity that earns a priority return ahead of common equity, often used instead of or alongside mezzanine debt. It ranks behind all debt but ahead of common equity, with risk and cost to match.
Sponsor or developer equity plus joint venture or limited partner investor equity. It has the last claim on cash flow and takes the most risk, in exchange for the most upside.
| Layer | Repayment priority | Relative risk | Relative cost/return | Typical sources |
|---|---|---|---|---|
| Senior debt | Paid first | Lowest | Lowest | Banks, HUD 232, agency lenders |
| Mezzanine debt | After senior debt | Moderate | Higher than senior debt | Debt funds, private lenders |
| Preferred equity | After all debt, before common equity | Moderate to high | Higher than mezzanine, typically | Private equity, family offices |
| Common equity | Paid last | Highest | Highest potential return | Sponsor, JV partners, LP investors |
Senior living development financing is a set of trade-offs. More leverage means less equity but higher cost and risk. Developers weigh how much sponsor equity the deal can support, what investors expect to earn, and the control and approval rights each layer brings. Test feasibility under conservative lease-up and cost assumptions before committing to a structure. Developers can learn more on our senior housing developers page.
Haven Senior Investments is a capital broker — not a construction lender. Our role is to help senior housing developers structure the right capital stack for their project, identify the most appropriate construction financing program, and connect them to lenders who understand senior housing underwriting.
Explore construction financing, developer advisory, and Capital Solutions, or contact our team.
A capital stack ranks the debt and equity funding a project by repayment priority. Cash flow and sale proceeds pay senior debt first, then mezzanine debt, then preferred equity, and finally common equity. The lower layers take less risk and cost less; the upper layers take more risk for higher potential return.
From bottom to top: senior debt, mezzanine debt, preferred equity, and common equity. Not every project uses every layer; many use only senior debt and common equity.
Senior debt typically comes from banks and other construction lenders, HUD Section 232 programs, and — after stabilization — agency or bank permanent loans. Mezzanine debt and preferred equity often come from debt funds, private equity, or family offices, and common equity from the sponsor plus joint venture or LP investors.
It varies with the leverage available, project risk, operator track record, and market conditions. Lenders and investors will set minimums during underwriting.
It depends on the project's stage, size, operator, market, and the sponsor's goals for leverage, cost, and control. Construction, bridge, HUD, agency, and bank options each fit different situations, and the right mix often changes as the project moves from construction to stabilization.
Yes. A senior housing capital advisor can help structure the stack, test it under conservative lease-up and cost assumptions, identify suitable programs, and introduce lenders and investors who understand senior housing underwriting.
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