Capital Stack

A typical $50M value-add multifamily acquisition

The diagram below shows a generic 2026 capital stack for a $50M Sun Belt value-add multifamily deal. Senior debt sits at the bottom because it gets paid first and has the lowest cost. Common equity sits at the top because it gets paid last and earns the highest expected return. Each band is priced for its position in line.

The cheapest money, taken first

Senior debt is the largest single line on most deals. On 2026 multifamily, the most common source is agency debt via a DUS lender like Walker & Dunlop, Berkadia, Greystone, or CBRE Capital Markets. Terms in May 2026: 6.0 – 6.5% fixed for 5 – 10 years, 65 – 75% LTV, interest-only for the first 3 – 5 years, non-recourse.

Alternative senior debt sources: regional banks (cheapest but lower LTV, often recourse), life insurance companies (longest terms, lowest rates, hardest to access, lowest LTV at 55 – 60%), CMBS conduits (fixed-rate non-recourse, more friction), and debt funds (highest LTV at up to 80%, floating-rate, used on heavy value-add and construction).

Filling the gap between senior debt and equity

Mezzanine debt sits behind the senior loan and in front of equity. It carries higher rates (11 – 13% in 2026), shorter terms (3 – 5 years), and is secured by a pledge of the LLC interests rather than the property itself. Mezz is most common when the senior lender caps LTV at 60 – 65% but the sponsor wants 70 – 75% total leverage without diluting LP equity returns.

2026 mezz providers active in real estate: Mesa West Capital, Pacific Western Bank, Bridge Investment Group, Ares Real Estate, Walker & Dunlop's preferred equity desk, Slate Asset Management.

Equity in name, debt in behavior

Preferred equity is technically equity but functions like debt. It earns a fixed coupon (10 – 13% in 2026), often split between current-pay and accrual, gets paid before common equity, but does not participate in upside above the coupon. Pref is used when the sponsor needs to thin LP equity but the senior lender will not allow more debt.

Pref sits in a hairy middle: it has no first-lien security like mezz, no upside like common, and a higher cost than both. It exists because the structure pencils when nothing else does. Common providers: family offices doing structured deals, dedicated pref-equity funds like Origin Income Fund or Ares Pref Equity, and increasingly the debt-fund desks at the agency lenders.

Skin in the game

The sponsor and its principals personally invest in the deal alongside LPs, usually 5 – 10% of total equity. GP co-invest sits on the same terms as LP common (same pref, same waterfall position) and is the most visible signal of alignment. LPs in 2026 routinely refuse to invest in a deal where the GP co-invest is below 3% or where the GP's check is being financed by a recycled acquisition fee.

Top-quartile sponsors routinely co-invest 8 – 15% of total equity from personal balance sheet. Tides Equities, Origin Investments, and Ashcroft Capital all publicly cite GP co-invest above 5%.

The LP investor's actual position

LP common is the residual claim. It is paid last out of operating cash flow, paid last on a sale, and is the first capital to be impaired if the deal goes south. In exchange the LP earns the upside above the preferred return through the promote waterfall. Target IRR on LP common in 2026 multifamily value-add: 13 – 18% net of fees.

How profits actually split between GP and LP

The waterfall is the cash-distribution algorithm. A common 2026 multifamily waterfall has four tiers:

1. Return of capital: LPs get their invested principal back 100% before any other distribution.
2. Preferred return: LPs earn an 8% annualized return on their unreturned capital. Pref accrues if not paid currently.
3. Catch-up (sometimes): GP receives 100% (or 50%) of distributions until the GP has caught up to its promote share. Many deals skip this tier.
4. Promote split: Above the pref hurdle, profits split 70% to LP / 30% to GP up to a 15% IRR, then 50/50 above. A two-tier "European" waterfall is common in fund vehicles; a "deal-by-deal American" waterfall is common in single-asset syndications.

How the GP gets paid even when the deal is mediocre

Beyond the promote, sponsors earn a stack of recurring fees that are largely independent of deal performance:

• Acquisition fee: 1 – 2% of purchase price, paid at close. On a $50M deal, that is $500K – $1M to the GP at closing.
• Asset-management fee: 1 – 1.5% of equity raised, paid annually. On $15M equity, that is $150K – $225K per year for the hold.
• Construction-management fee: 3 – 5% of capex spend on value-add. On a $5M renovation, that is $150K – $250K.
• Refinance fee: 0.5 – 1% of new loan proceeds on a cash-out refi.
• Disposition fee: 1% of sale price at exit.
• Loan-guarantee fee: 0.25 – 0.5% per year on the loan balance for personally signing on the agency loan.

Total GP fees on a $50M deal over a five-year hold can easily exceed $2.5M before any promote is paid. LP-friendly sponsors disclose this stack in the PPM. LP-unfriendly sponsors hide it.

$50M, 5-year hold, full example

Setup: $50M Sun Belt value-add multifamily, 70% LTV ($35M senior + mezz), $15M equity ($2.5M GP co-invest + $7.5M LP common + $5M pref). 5-year hold. Exit at $68M (4% annual NOI growth + 25 bps cap rate compression). Total project profit after debt payoff and fees: roughly $19M.

LP earns 2.05x equity multiple and a 15.2% IRR net of fees. GP earns $5.7M from promote and co-invest return, plus roughly $2.5M of fees over the hold, for a total of $8.2M on a $2.5M co-invest. That is the engine of the sponsor business.