Choosing the right capital stack starts with your goals
When you’re planning an acquisition, development, or value-add business plan, the first big financing decision is often how much debt vs. how much equity to use. The right mix can improve returns, protect downside risk, and keep your project moving on schedule.
At MaroConsulting LLC, we help sponsors and owners nationwide evaluate options and structure financing for commercial real estate projects—especially when speed, flexibility, and execution matter.
Debt financing: leverage, predictability, and lender requirements
Debt is borrowed capital that must be repaid on a defined schedule. In CRE, debt is commonly used to fund a large portion of project costs while allowing the sponsor to retain ownership control.
Common benefits of debt
- Lower cost of capital than equity in many scenarios
- Ownership retention (no dilution of the sponsor’s stake)
- Predictable payments and a defined maturity timeline
- Potentially higher returns on equity when the project performs as expected
Key tradeoffs to plan for
- Underwriting constraints (DSCR, LTV/LTC, debt yield, reserves)
- Covenants and reporting that can limit flexibility
- Refinance risk at maturity if rates or valuations move
- Execution risk if timing, documentation, or conditions delay funding
Equity capital: flexibility and risk-sharing
Equity is ownership capital invested into the project. It typically has no fixed repayment schedule, but it does require a return—often through preferred returns, profit splits, or promote structures.
Common benefits of equity
- More flexibility during lease-up, renovation, or stabilization
- Lower default risk compared to over-leveraging with debt
- Stronger lender profile when paired with conservative leverage
- Risk-sharing with a capital partner (useful for larger or more complex deals)
Key tradeoffs to plan for
- Dilution of ownership and decision-making (depending on terms)
- Higher return expectations than senior debt
- More complex documentation (waterfalls, governance, reporting)
- Alignment—the “right” partner matters as much as the pricing
How to decide: 5 questions we recommend answering first
- What is the business plan? Acquisition, development, refinance, or value-add—and what’s the timeline to stabilization?
- How sensitive is the deal to rates and valuation? Model downside cases and maturity scenarios.
- How much flexibility do you need? Construction draws, interest reserves, capex, and contingency planning.
- What does the project need to qualify for debt? DSCR/LTV/LTC targets, reserves, and sponsor requirements.
- What outcome matters most? Maximum IRR, lower risk, faster close, or long-term hold stability.
Typical structures we see for $1M+ CRE projects
Every deal is different, but many sponsors use a combination of senior debt plus equity (sponsor equity, LP equity, or a structured equity solution). For hospitality and multi-family projects—especially those with renovations or repositioning—capital stacks often need to balance execution speed with stabilization flexibility.
Our goal is to help you secure capital that fits the project—not force the project to fit the capital.
How MaroConsulting LLC can help
Since 2018, we’ve supported sponsors and owners with structured finance guidance and access to a broad network of capital sources. We work across multi-family communities, residential communities and high-rises, and hotels & hospitality (including preferred hospitality projects).
If you’re evaluating debt vs. equity—or planning a refinance or value-add initiative—we can help you compare options, pressure-test assumptions, and move toward a financing plan that aligns with your timeline and goals.