Glossary definition
Waterfall
The contractual mechanism that determines the order and priority in which project proceeds are distributed among the parties in a development finance structure. A typical waterfall flows from repayment of senior debt, to return of mezzanine capital plus interest, to return of equity capital, to preferred return, and finally to profit share.
Definition
The contractual mechanism that determines the order and priority in which project proceeds are distributed among the parties in a development finance structure. A typical waterfall flows from repayment of senior debt, to return of mezzanine capital plus interest, to return of equity capital, to preferred return, and finally to profit share. The waterfall structure is critical in joint ventures and equity partnerships, as it determines how value is split between the capital provider and the developer.
See also
Closely related terms.
Preferred Return
A minimum rate of return that must be paid to one class of investor before profits are distributed to other parties in a joint venture or equity structure.
Capital Stack
The total structure of funding used to finance a development project, arranged by seniority from senior debt at the bottom through mezzanine finance to developer equity at the top.
Equity
The developer's own capital contribution to a project, sitting at the top of the capital stack and bearing the highest risk but also receiving the residual profit.
Joint Venture
A partnership arrangement between a developer and a capital partner to deliver a property project, typically structured so the developer contributes expertise and management while the equity partner provides the capital.
Subordination
The arrangement by which one lender agrees that their claim on the borrower's assets ranks behind that of another lender, most commonly where mezzanine debt is subordinated to the senior lender's first charge.
Further reading
Guides that touch this term.
Guide
The Capital Stack in Property Development: How to Structure Your Funding
A comprehensive guide to understanding and structuring the capital stack in UK property development, from senior debt through mezzanine to equity contributions.
9 min read readReadGuide
Mezzanine Finance vs Joint Venture Equity: How to Choose
Both mezzanine and JV equity reduce the cash you need to invest. But they work very differently and suit different situations. This guide helps you decide which is right for your project.
4 min read readRead
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