Capital Structure

Capital structure is the composition of debt and equity used to finance a property acquisition, determining leverage, risk, and return characteristics.

ComponentCharacteristics
EquityOwner capital, highest risk, highest return potential
Senior debtFirst mortgage, lowest risk, fixed interest
Mezzanine debtSubordinated to senior, higher interest
Preferred equityPriority over common equity, fixed return
Leverage ScenarioEquity/Debt Split
All-cash purchase100% equity, 0% debt
Conservative leverage40% equity, 60% debt
Moderate leverage25% equity, 75% debt
Aggressive leverage15% equity, 85% debt (rare in Dubai)

Related Terms

Leverage RatioLoan-to-Value (LTV)Gearing RatioWACCDebt Yield

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