Separate capital sources from annual obligations
Enter total project uses and the amounts contributed by senior debt, mezzanine and preferred equity. Common equity is the remaining funding requirement. Current-pay cost is the sum of each financed amount multiplied by its assumed annual current-pay rate. The blended rate is weighted across those three positions.
Worked example
For $20 million of uses, a $12 million senior loan at 8%, $2 million mezzanine at 12% and $1 million preferred equity at a 10% current-pay rate leave $5 million common equity. Annual current-pay cost is $1.3 million and the weighted rate is approximately 8.67%. With $1.6 million NOI, $300,000 remains before omitted obligations.
Economic tradeoffs require more than a rate
More subordinate capital can reduce common equity required while increasing annual obligations and changing control rights. A preferred return may accrue rather than be paid currently. Enter only its current-pay portion here and account separately for accrual, redemption, participation and the exit waterfall.
Important model boundaries
This simplified comparison assumes interest-only debt and constant balances. It does not model amortization, fees, reserves, taxes, accrued returns, promotes, IRR, loss allocation or legal payment priority. NOI less current-pay cost is not distributable cash. No result establishes funding eligibility.