Companion pages on this site cover seller carry on its own, the negotiation and the arithmetic. This page covers what happens when carry is not alone: the layered stack, senior debt plus mezzanine plus carry, sometimes preferred equity above that, assembled to close a proceeds gap the senior alone cannot bridge. Layered stacks are legitimate structure, common in this rate environment, and the source of a specific category of failure that never appears in the pro forma, because the pro forma shows the layers' costs and the failures live in the layers' conflicts.
Understand what each layer is. Mezzanine is professional gap capital: priced for its position, documented by people who do this daily, secured typically against the ownership entity rather than the property, with remedies that move fast. Seller carry is amateur gap capital in the technical sense: motivated by the transaction, priced by negotiation, documented as well as the deal's lawyers insisted, and held by a counterparty whose behavior in a workout is an unknown. Stacking them means these two very different creditors now hold adjacent claims on the same cash flows, and the document that governs their coexistence, the intercreditor and subordination agreement, is the most consequential paperwork in the deal that the sponsor did not draft.
The senior lender rules the arrangement, and their consent is a gating question, not a formality: many senior loans prohibit junior debt outright, others permit it under conditions, and layering behind a senior without consent is a default hiding in the org chart. Below the senior, the conflicts are structural. Who gets paid current if cash tightens, whose default triggers whose, whether the seller's carry stands still while the mezz exercises remedies, what happens to each layer at the refinance the plan depends on, since every layer must be taken out or resubordinated on that day, at that market's terms. Each question has an answer in the documents. The underwriting failure is not knowing the answers until the year they matter.
Then the arithmetic discipline that layered stacks demand: combined debt service against honest cash flow, through the weak years, not year one, because a stack that covers at stabilization and starves during the reposition trough has scheduled its own crisis. Blended cost against what the marginal dollar earns. And every layer's maturity plotted on the same calendar as the rollover schedule and the refinance, because a stack is also a sequence of dates, and dates are where stacks break.
PropCalc™ models the multi-layer stack natively, each tranche with its own cost, priority, and terms, carried through coverage, cash flow, and the waterfall month by month, so the structure's behavior in the bad year is visible in the good one. Layered capital is a fine way to close a gap. It is a terrible thing to discover you never modeled.