How Rising Rates Are Restructuring the Capital Stack
Rising interest rates don’t just nudge yields—they redraw the entire blueprint of how real estate deals get financed, governed, and de-risked. From senior debt terms to promote structures, the capital stack is being rebuilt to accommodate higher carry costs, tighter underwriting, and shifting risk appetites. Here’s how the pieces are moving—and what it means for sponsors and investors.
1) Senior Debt: Lower Leverage, Tighter Covenants, Pricier Carry
Banks and life companies are protecting downside with lower loan-to-value ratios (think 50–60% where 65–70% was common), higher debt service coverage ratios, and enhanced reserves. Floating-rate debt now demands robust interest rate caps or swaps, with stricter requirements around DSCR triggers and cash sweeps. Lenders are also extending ...
