If you hang out with the real estate folks long enough, you’ll hear them talk about their “capital stack”. The capital stack is one of the most important concepts for investors interested in assessing real estate risk and the projected rate of return. Understanding the stack of capital to assess trade-offs can protect your investment from excessive risk or insufficient gains. There are many ways to assess a potential investment in a commercial real estate transaction, and the capital stack is one of the most valuable – it lets you know who gets paid, in what order, and what risk they carry. Each is extremely important when it comes to determining the risk and reward of a given investment.
Simply put, the capital stack represents the underlying financial structure of a commercial real estate transaction. Often times, the stack of capitals is presented in the form of a graphic that shows the different types of capitals in a transaction stacked on top of each other, like a cake with several layers. The two main components of the capital stack are debt and equity. There is a new and innovative way to build your capital in Oklahoma.
There is a new program in Oklahoma that helps building owners, developers, investors, or anyone looking to fund a project but also looking to do things better. A new source of finance called Property-Assessed Clean Energy Finance, or PACE finance, is private capital available for low-cost construction projects using energy efficient utilities, water, or utilities. operations. PACE is a legislated program at the state level, then at the municipal level, which allows private investments to finance energy loans for building improvements through a tax assessment lasting 20 to 30 years.
This innovative financing approach covers several types of buildings and can finance hospitality, multi-family housing, offices, industry, retail and special use, and projects can be new construction or construction projects. renovation. Funding encourages innovation and quality in the areas of HVAC, plumbing, lighting, windows, building insulation, roofing, solar power or elevators.
Many investors looking to fill their capital gaps do so with PACE. PACE funded projects are secured by a special appraisal on the property, building owners can access low cost, long term, fixed rate, non recourse capital. With this security, PACE can partner with almost any type of capital stack to provide funding when there is a gap.
J. David Chapman is Associate Professor of Finance and Real Estate at the University of Central Oklahoma ([email protected]).