The Capital Stack Equation (why so many good deals die in “almost funded”)
The 4-variable model behind every funding delay
Welcome back!
It’s (already) January 2026, which means it’s time to dive right in with your latest dose of real estate investment insights, so let’s get to it.
Writing to you from my desk in Montreal, very cold and snowy. Enjoy.
Contrary to popular belief -
Most deals do not fail in underwriting.
They fail in the capital stack.
Not because the numbers are impossible, but because the stack is treated like a spreadsheet exercise instead of what it really is:
A sequence of commitments that must be engineered, timed, and de-risked.
This is not a work ethic problem. It is a mechanics problem.
Here is the model I use to diagnose why a stack is stalling:
The Capital Stack Equation:
Conviction x Commitment > Complexity + Contingency Drift
If the left side is not bigger than the right side, you will not close. You will “keep working it” until it dies.
Let’s define the variables.
Conviction
How clearly the deal survives reality - not your base case.
What is the downside DSCR under higher rates and lower rents?
What is the exit resilience if cap rates move?
What is the sponsor’s execution credibility and sequencing plan?
What is the real sensitivity to build costs, voids, and time?
Conviction is not optimism. It is the ability to answer the uncomfortable questions in one page.
Commitment
Hard commitments, in writing, with deadlines.
A lender term sheet with conditions you can actually satisfy
An equity soft circle that becomes a signed subscription
A partner who will move when you ask, not “after IC”
No commitment, no stack. Just conversation.
Complexity
How many moving parts you have created.
Too many tranches
Too many investor types
Too many bespoke side letters
Too many “we can figure it out later” items
Complexity kills timing. Timing kills pricing. Pricing kills deals.
Contingency Drift
The silent killer: you keep adding buffers and “just in case” structure until the deal becomes unfinanceable.
Another reserve
Another covenant
Another tranche
Another layer of fees
Another advisor “requirement”
Each addition feels prudent. The sum becomes paralysis.
A real example (the pattern, not the postcode)
Let’s imagine a sponsor has a high-quality asset and a clean business plan.
But they try to fund it with:
senior debt
mezz
preferred equity
common equity
a JV promote
a sustainability-linked feature
plus a future refinance assumption
On paper, it is “optimised”.
In reality, it is reliant upon too many signatures and too many veto points.
The equation looks like this:
Conviction: medium (base case looks great, downside answers are soft)
Commitment: low (lots of interest, no signed paper)
Complexity: high
Contingency Drift: growing (every party adds conditions)
So the deal stalls. Everyone asks for “one more thing”. Weeks pass. The market shifts. The lender reprices. Equity gets cold.
Now watch how to flip it.
How to flip the equation (the operator play)
You do not need a more creative stack.
You need a more committable stack.
Increase Conviction
Write the one-page “Reality Memo”:
Deal thesis in one sentence
3 numbers that matter (downside DSCR, time-to-stabilise, exit cap buffer)
3 risks you cannot hand-wave (cost, time, demand)
Your mitigation plan in bullets
The single most likely failure mode and how you have removed it
If you cannot do this, the stack will always feel fragile.
Engineer Commitment
Move from “interest” to “paper” by sequencing:
Get senior terms first (or you are pitching equity on sand)
Convert one anchor equity cheque first (or everyone waits)
Set a public internal deadline: “Stack locked by Friday 3pm”
Commitment loves deadlines. Equity hates ambiguity.
Reduce Complexity
Ask a brutal question:
If I had to remove one layer, which one would I remove first?
Often, the best stack is not the one with the lowest weighted cost of capital.
It is the one that actually closes.
Kill Contingency Drift
Replace “more reserves” with “better controls”.
tighter scope definition
milestone-based draw discipline
execution accountability
contractual protections
a simple covenant package you can live with
Buffers are not a strategy. Controls are.
How to use this this week (5-minute diagnostic)
Pick one live deal or stress test your underwriting on a sample site and answer:
Conviction: can I defend the downside in 60 seconds?
Commitment: what is signed, not discussed?
Complexity: how many decision makers can kill this?
Contingency Drift: what have we added in the last 30 days that made closing harder?
Then take one action:
If Conviction is weak - write the Reality Memo
If Commitment is weak - set a deadline and get paper
If Complexity is high - remove a layer
If Drift is high - replace buffers with controls
Mini-examples (bankers, PE, family offices)
Banker: commitment is delivered on a term sheet, not through “credit appetite”
Private Equity (PE): conviction is downside survivability, not the base-case Investment Committee deck
Family Office: complexity dies when you give them one clean structure and one clear protection story
The Big Lesson:
Capital stacks do not close because they are clever.
They close because they are simple enough to commit to, with downside clarity strong enough to hold.
Conviction x Commitment > Complexity + Contingency Drift
Follow the formula and watch your next deal close with committed capital.
Until next time,
Always be raising finance.
Matt