Capital stack and funding gap calculator

This calculator adds the senior loan, mezzanine loan, preferred equity and committed common equity into total sources and compares that sum with total uses of funds. It answers whether the capital stack covers the budget and how much each layer contributes. The senior loan share, all debt share and all equity share show how the stack is balanced.

Formulas

• Total sources = senior loan + mezzanine loan + preferred equity + common equity
• Funding gap = total uses - total sources
• Senior loan share = senior loan / total uses (loan to cost for the senior layer)

Worked example with the starting inputs

With the starting inputs in the form (total uses of funds $20,000,000; senior loan $12,000,000; mezzanine loan $2,000,000; preferred equity $1,500,000; common equity committed $3,500,000), the results are: total sources: $19,000,000; funding gap (positive means short): $1,000,000; senior loan as share of uses: 60.0 percent; all debt as share of uses: 70.0 percent; all equity as share of uses: 25.0 percent.

These inputs are hypothetical and are shown only so the arithmetic can be checked by hand.

What the capital stack result means in a real deal

Sources must cover total uses, which add up purchase price, renovation budget, closing costs, interest reserve and lender fees. With a senior loan of 12,000,000, mezzanine of 2,000,000, preferred equity of 1,500,000 and common equity of 3,500,000, total sources reach 19,000,000. Each layer carries its own pricing and its own claim on cash flow.

The gap line is the number a limited partner or lender asks about first. A positive figure means the sponsor still owes the deal a source, usually more common equity or a larger preferred slice.

How to read and stress the funding gap

Move one input at a time. Raise total uses by a cost overrun and watch the gap widen, then trim the senior loan after an appraiser returns a lower value and compare against the term sheet.

Start with the senior layer, because the lender’s term sheet usually caps proceeds by the lower of a loan to cost ratio and a debt service coverage test. If the appraiser’s value or the cap rate used to size the loan moves, the senior loan can shrink even when uses stay put, and the gap grows by the same amount.

Where the capital stack result misleads

The calculator treats every source as certain. A mezzanine commitment letter or preferred equity term sheet carries conditions that a signed loan agreement or operating agreement settles later. Closing can look quite different.

Shares of uses say nothing about debt service coverage, so a stack that looks modest can still strain cash flow once interest on mezzanine debt and preferred returns are paid. Lenders also define uses differently: some exclude the interest reserve or lender fees, and others count only hard costs when sizing the loan to cost. Preferred equity can behave like debt in the waterfall, which makes the split between all debt and all equity depend on the documents. The lender’s underwriter and the sponsor’s own model may each reach a different total for the same property.