Structuring capital stacks for mixed-use developments

Mixed-use developments — those combining residential, retail, office, or other uses within a single project — present some of the most complex financing challenges in commercial real estate. Unlike single-asset transactions where one lender can typically provide the full debt solution, mixed-use deals often require layered capital structures that blend multiple debt and equity sources.

The challenge is that different uses within a mixed-use project have different risk profiles, lease-up timelines, and income characteristics. Residential units may lease quickly, while retail or office space could take 12 to 24 months to stabilize. A single senior lender has to underwrite the entire project as one — and their conservative approach to the weakest component can constrain proceeds on the whole deal.

We recently structured financing for a $45 million mixed-use development combining 120 residential units, 15,000 square feet of ground-floor retail, and a 200-stall parking garage. The sponsor needed $32 million in total debt to make the project work, but the senior lender — a regional bank — was willing to provide only $25 million based on their blended underwriting.

The solution was a three-layer capital stack. Senior debt of $25 million from the bank at SOFR + 325. A $5 million mezzanine loan behind the senior at SOFR + 650, provided by a private debt fund. And $2 million in preferred equity from a specialty capital provider, structured as an investment rather than debt to keep the senior lender comfortable with the leverage profile.

Each layer had different terms, covenants, and exit requirements — but together they got the sponsor to the proceeds needed. The all-in blended cost of capital was higher than a single-source permanent loan would have been, but the project wouldn't have been financeable without the layered approach. And critically, the structure included a clear path to refinance into permanent debt once the project stabilized.

The key takeaway for sponsors pursuing mixed-use development: don't expect a single lender to solve your capital needs. Start early, work with an advisor who understands layered structures, and identify multiple capital sources for different parts of the stack. Inter-creditor agreements, subordination arrangements, and standby periods all take time to negotiate — begin the process well before you need the capital deployed.