Key takeaways
- A funding stack arranges each tranche of money by the rank of risk it bears, when it comes in and how it exits. It is not a list of funding sources.
- Funding falls into 5 groups: bank debt, debt instruments, equity and quasi-equity, project cash, and new alternatives. Each group suits a different stage of the project.
- Leverage magnifies both profit and loss. In the example, 75% debt gives an Equity IRR of 39.8% when Project IRR is 18%, but -1.8% when Project IRR falls to 5%.
A stack is an order of risk-bearing
Every project has layers of money stacked on one another. When cash comes in, the upper layers are paid first; when losses occur, the lower layers bear them first. This order is why each layer has a different cost: those who bear more risk naturally demand a higher return.
| Order of repayment | Type | Example |
|---|---|---|
| 1 | Senior Secured | Project loan secured by a first-ranking mortgage |
| 2 | Senior Unsecured | Unsecured revolving facility |
| 3 | Subordinated | Mezzanine Loan |
| 4 | Preferred Equity | Investors' preference shares |
| 5 | Common Equity | Core shareholders' equity |
Where there are several layers of creditors, an Inter-Creditor Agreement is needed to set the order of repayment, the period junior creditors must wait before enforcing their rights (Enforcement Standstill), voting rights, refinancing rights and information sharing.
5 groups of funding sources
The costs in the table are approximate ranges for comparison. Actual costs depend on the company's credit and market conditions.
| Group | Tools | Approximate cost | Main constraints |
|---|---|---|---|
| A. Bank debt | Term Loan, Construction Loan, Bridge, O/D | About 6–10% a year | Security, DSCR, LTV and strict approval |
| B. Debt instruments | Private Bond, Promissory Note, Debenture, Securitization | About 7–12% a year | More flexible, but subject to SEC rules |
| C. Equity and quasi-equity | Sponsor Equity, JV, Preferred Equity, Fund/Trust | Expected return of 12–20% or more | No fixed repayment burden, but ownership is shared |
| D. Project cash | Presale Cash Flow, Supplier/Contractor Credit | No direct interest, but there are hidden costs | Depends on sales and bargaining power |
| E. New alternatives | Investment Token, Crowdfunding, REIT, Green Bond, Private Credit, Strategic Investor | Varies by instrument | Specific criteria, size or complexity |
In risk terms, mezzanine sits between senior debt and equity. Although it is a loan, it costs more than senior debt and should be placed in a lower layer. Do not count it together with bank debt when assessing risk-bearing capacity.
A. Bank debt
| Tools | Characteristics | Suitable for | Points to watch |
|---|---|---|---|
| Term Loan | Borrowed as a lump sum, repaid in instalments, secured | Projects with clear cash flow | DSCR, LTV, EIA and security conditions |
| Construction Loan | Drawn down according to construction progress per the S-curve; interest is paid only on the amount drawn | Construction stage | Work must meet each progress milestone |
| Bridge Loan | Short-term borrowing to bridge the time until the next lump sum | Before refinancing or while waiting for Presale money | High interest; should be used short term |
| Mezzanine Loan | Subordinated debt, which may be convertible into shares | Fills the gap between senior debt and equity | Higher interest than senior debt |
| Overdraft | Overdraft facility, paid according to usage | Short-term working capital | Not suitable for long-term use |
B. Debt instruments
| Tools | Characteristics | Suitable for | Points to watch |
|---|---|---|---|
| Private Bond | Offered to selected investors; the issuer can set the coupon and tenor | Large sums that need flexibility | Must meet the SEC's private placement criteria |
| Promissory Note, B/E | Short-term notes that can be issued quickly | Working capital or a short bridge | A public offering may fall under SEC criteria |
| Debenture | Secured or unsecured debentures; broader than a PP | Companies with good credit | Usually need a rating and full filing |
| Securitization, Future-flow | Converts future cash flow into a lump sum | Assets with regular income | Complex structure, high set-up cost |
There are several private placement channels for debentures, such as PP-10, institutional investors and high-net-worth investors. Each has different conditions on investor type, number of investors, filings and the debenture holders' representative, and the criteria are revised from time to time. Check the SEC's latest announcements with a financial adviser and a lawyer before issuing the instrument.
C. Equity and quasi-equity
| Tools | Characteristics | Advantages | Points to watch |
|---|---|---|---|
| Sponsor Equity | Owner's equity; banks usually ask for 20–40% | No debt burden, full control | Highest cost; the owner's money is tied up |
| JV Equity | Co-investment partners | Shares the risk; brings capital and know-how | Control is shared; the contract must be clear |
| Preferred Equity | Receives a return before ordinary shares | More flexible than debt | Costs more than debt |
| Real Estate Fund, Trust | Sell assets into a fund and lease them back | Releases tied-up capital and returns a lump sum | Set-up cost and complexity |
D. Project cash
| Tools | Characteristics | Advantages | Points to watch |
|---|---|---|---|
| Presale Cash Flow | Booking deposits, contract deposits and down payments from buyers | No direct interest | Slow sales create a gap; there is a risk of cancellations and refunds |
| Supplier, Contractor Credit | Trade credit from suppliers | Reduces the cash needed during construction | The cost is often hidden in the price |
E. New alternatives
| Tools | Suitable for | Points to watch |
|---|---|---|
| Investment Token | Retail fundraising in small units | Issued through a licensed ICO portal under the Digital Asset Emergency Decree 2018 |
| Real Estate Crowdfunding | Small to medium projects | Limited amount; must use a licensed platform |
| REIT, Property Fund | Exit: assets with regular income | Must reach sufficient size; complex to set up |
| Green, Sustainability Bond | Green buildings, clean energy | Requires a framework and an external review |
| Private Credit | When banks are not yet lending but the project has potential | Higher interest than banks |
| Strategic Investor | Projects that need a brand or know-how | Rights and profits are shared; negotiation is complex |
Comparing instruments by phase
| Tools | Cost | Speed | Flexibility | Security | Phase |
|---|---|---|---|---|---|
| Sponsor, JV Equity | Highest | Slow | High | Not required | Get Started |
| Presale Cash Flow | Low; hidden costs | Fast if sales are good | Moderate | Not required | Construction and sales |
| Term, Construction Loan | Low to medium | Slow because approval is required | Moderate | Required | Construction and long term |
| Private Bond, Debenture | High | Moderate | High | Case by case | Large sums |
| Promissory Note | Medium | Fast | Medium | Not necessary | Short term |
| Mezzanine | High | Moderate | High | Partial; subordinated | Gap filling |
| Fund, Trust | Low after exit | Slow | Low | The asset itself | Exit and long term |
How much debt is appropriate
| Dimension | Debt | Equity |
|---|---|---|
| Cost | Lower | Higher |
| Tax | Interest is tax-deductible | Dividends are not deductible |
| Cash flow | Must be paid on schedule | No mandatory payment |
| Risk to the company | High; default is possible | Low |
| Control | No direct impact, but covenants apply | Diluted |
| On liquidation | Paid first | Paid last |
The proportions seen in practice depend on the certainty of cash flow, the quality of security and market conditions. The following ranges are a reference framework based on experience, not bank criteria.
| Project type | D/E | Debt to total capital |
|---|---|---|
| Mid-market condo | 2.0–3.0x | 65–75% |
| Luxury condo | 1.5–2.5x | 60–70% |
| Villa, Branded Residence | 1.0–2.0x | 50–65% |
| Hotel Development | 2.0–3.0x | 65–75% |
| Wellness Resort | 1.0–2.0x | 50–65% |
| Large mixed-use | 1.5–2.5x | 60–70% |
| Assets with steady income | 2.0–4.0x | 65–80% |
Leverage magnifies both ways
Example A project that invests everything on day one, is held for 4 years and is then sold in one lump sum. Debt accrues compound interest and is repaid at the end; tax is excluded.
| Debt % | Interest | Equity IRR when Project IRR is 18% | Equity IRR when Project IRR is 5% |
|---|---|---|---|
| 0% | — | 18.0% | 5.0% |
| 30% | 6.5% | 22.0% | 4.3% |
| 50% | 6.5% | 26.9% | 3.4% |
| 65% | 6.5% | 33.2% | 2.0% |
| 75% | 7.0% | 39.8% | -1.8% |
| 85% | 8.0% | 51.1% | -20.8% |
Real projects draw down gradually and receive money in several instalments, so the figures differ from this. Use it only to see the direction.
A commonly used range is debt of 60–70% of total cost. In a risky market, reduce it to no more than 60% and set aside an equity reserve of 10–15% of total cost. Experience from the 1997 crisis and Covid-19 points the same way: developers with debt above 80%, no reserve and a low DSCR often cannot withstand sales that are 20–30% slower.
What WACC is used for
WACC = (E/V × Re) + (D/V × Rd × (1 − T))
Example Equity THB 600 m, debt THB 1,400 m, total THB 2,000 m, Re 18%, Rd 6.5%, tax 20%
WACC = 30% × 18% + 70% × 6.5% × (1 − 20%) = 5.40% + 3.64% = 9.04%
A WACC of 9.04% is the minimum floor a project must achieve so as not to destroy value. The hurdle rate for a development project should be higher, to compensate for construction and sales risk.
Modigliani-Miller theory says that in an ideal world capital structure does not affect value, and that when taxes exist, interest adds value through the tax shield. But the real world has bankruptcy costs, agency costs, information asymmetry and transaction costs, so debt should not be as high as the most you can borrow.
A stack ends at exit
Every stack must answer what money will repay the debt and when the equity comes back
| Channel | Suitable size | Fundraising cost | Time | Effect on control |
|---|---|---|---|---|
| Bank Loan | Under THB 2,000 m | 0.5–1% | 3–6 months | Low; covenants apply |
| Private Placement | THB 500–3,000 m | 1–2% | 3–4 months | Moderate |
| Corporate Bond | Over THB 1,000 m | 1–3% | 4–6 months | Low |
| REIT | Over THB 500 m | 3–5% | 9–12 months | Medium to high |
| IPO | Over THB 1,000 m | 5–10% | 18–36 months | Highest |
| Crowdfunding | Under THB 100 m | 3–7% | 2–4 months | Low |
- Projects sold to buyers: debt is repaid from transfer proceeds and the release price.
- Assets held long term: switch from a construction loan to post-finance once income stabilises.
- Assets with regular income: consider selling into a fund or REIT once the size and eligibility criteria are met.
- Bonds need a refinancing plan well before maturity.
- An IPO suits a company that needs liquidity and has governance in place; it is not necessary for every company.