Capital drives everything in CRE, whether you’re acquiring a stabilized asset, developing a new site from the ground up, or repositioning a value-add property. If you don’t know how to raise capital for commercial real estate, you can’t compete for the best opportunities.
Not sure where to start? This guide breaks down funding sources and proven techniques to structure and close deals. We cover everything, from real estate capital raising all the way to syndicating a CRE deal.
Be sure to bookmark this page and take notes. After all, how good you are at raising capital for real estate determines whether your transaction moves forward or falls apart
CRE capital stack explained
Before you explore private commercial lenders, let’s start with the basics: the capital stack. This layered structure shows how different types of capital fit together in a real estate deal: who gets paid first and how much risk each layer carries. When you understand the capital stack, you can manage investor expectations and protect your equity while building financing that matches your project’s profile.
The CRE capital stack has four layers:
- Senior debt typically covers 50% to 75% of a deal’s total capital. It sits at the bottom of the stack, which means that it’s first in line for repayment and carries the least risk. These loans are secured by the property and come from banks, credit unions, CMBS lenders, and insurance companies. Senior debt usually comes with lower interest rates and tighter terms because of the lower risk.
- Mezzanine debt carries more risk than senior loans and usually demands a higher return. Rather than being secured by the property, mezz debt is often backed by a pledge of equity in the borrowing entity.
- Preferred equity sits below mezzanine debt and above common equity. Investors here expect a fixed return, typically before any profits go to common equity holders. While it isn’t secured like debt, preferred equity investors have priority when distributions are made.
- Common equity is at the top of the stack (the riskiest spot). In a worst-case scenario, it’s the first to absorb losses and the last to be repaid. But if the project performs well, common equity earns the highest returns, after all other capital layers have received their payouts.
How to get capital for real estate investing through debt financing
Debt will likely make up the largest share of your CRE deal’s capital, so you need to choose the right loan type that matches your project’s asset type, timeline, and risk profile.
Bank loans and credit unions
Traditional banks and credit unions prefer stabilized assets and strong borrower profiles, so you’ll likely find the best rates here if you have a good track record and a solid property. However, the process tends to be slow and conservative because it involves detailed financial reviews and (in most cases) a personal guarantee.
- Pros: Competitive rates, strong relationships, and local market knowledge
- Cons: Conservative terms, lower loan-to-value (LTV) ratios, and lengthy approval timelines
Agency loans
Fannie Mae and Freddie Mac work through approved lenders to provide financing for stabilized apartment/multifamily buildings. The terms are attractive — you can expect long amortization periods, non-recourse options, and high leverage if your asset qualifies.
- Pros: Long terms, competitive rates, and non-recourse structure
- Cons: Limited to multifamily, strict underwriting, slower closing
CMBS loans
Often used by larger properties and borrowers looking for non-recourse financing, commercial mortgage-backed securities are loans packaged into bonds and sold to investors. CMBS lenders are more concerned about the property’s income stream more than the borrower’s personal finances. These loans are harder to modify or pay off early once issued.
- Pros: Non-recourse, longer fixed terms, and potentially higher LTV
- Cons: Complex servicing, rigid structures, and steep prepayment penalties
Life insurance companies
These institutions lend on high-quality, low-risk CRE properties, and their fixed-rate, long-term loans tend to be conservative. Raising capital via this route is suitable for borrowers with institutional-grade assets and long-term tenants.
- Pros: Attractive fixed rates, long durations, and reliable capital
- Cons: Tough underwriting, strict property requirements, and longer timelines
Bridge loans and hard money
If your timelines are tight or if you need money to quickly reposition a property, commercial bridge loans and commercial hard money loans are sometimes to most prudent options. These short-term loans are approved fast and focus more on the asset’s value than the borrower’s strength.
- Pros: Fast approvals, flexible terms, and asset-focused underwriting
- Cons: High interest rates, short durations, and the need for a solid exit strategy
How to raise capital for real estate from equity financing sources
Equity represents ownership in a CRE deal and sits at the highest risk tier in the capital stack. It also claims the greatest share of potential profits because it’s exposed to the most uncertainty. Sourcing this equity is an essential skill when it comes to capital raising for real estate.
Personal funds and partners
Using your own capital or combining resources with a direct business partner gives you full control and requires no external reporting at the outset. It also shows other investors that you’re financially committed.
- Pros: Full control, simple structure, signals commitment
- Cons: Limited to your own capital pool, restricts deal volume, and concentrates risk
Friends and family investors
You can also tap into your close network to raise equity. These investors are really investing based on trust in your judgment and goals, not just the project numbers.
- Pros: Easier access to capital, faster decisions, more flexibility
- Cons: High relationship risk if the deal underperforms, requires transparency, formal agreements, and expectation management
High-net-worth individuals and angel investors
There are many affluent investors looking for CRE opportunities with strong upside. They can join as syndication members or joint venture partners and are usually open to less liquid investments if the return profile matches their goals.
- Pros: Can provide large checks, more flexible than institutions, potential for ongoing partnership
- Cons: Harder to access without a strong network, require professional-grade pitches and due diligence, and expect solid returns
Private equity and real estate funds
Institutional funds pool capital from pension systems and endowments (as well as wealthy individuals) to target real estate strategies across asset classes. These groups typically prefer larger or more complex deals and demand high levels of professionalism and reporting.
- Pros: Access to large amounts of capital, project scale-up potential, and expert input
- Cons: Competitive to secure, high standards for sponsors, involved processes, and additional fees (management and carried interest)
Crowdfunding platforms
Web-based platforms like CrowdStreet and RealtyMogul connect sponsors with a large pool of retail investors to make it easier to raise smaller amounts from many backers. This approach works well for syndicating mid-sized deals that may not attract institutional capital.
- Pros: Broad investor base, streamlined fundraising, efficient for smaller equity needs
- Cons: Platform fees, more investor management, regulatory hurdles, and listing requirements
How to raise money for real estate investing through syndication
Syndication allows investors to pool together capital and access projects that would be out of reach individually. It’s one of the most effective ways to raise equity for developers or investors looking to scale. Syndications essentially finance acquisitions and repositioning strategies by sharing the risk and the reward across multiple stakeholders.
Roles in CRE syndication
- General partners (GP) or sponsor find the deal, secure financing, manage the asset, and execute the business plan. They usually contribute a smaller portion of the capital and earn fees and a share of the profits based on performance.
- Limited partners (LP) provide the bulk of the equity. They don’t take part in operations and are only liable up to the amount they invest. LPs depend on the GP’s skill and experience to deliver returns.
Key terms to understand when syndicating a CRE deal
- Preferred return (pref) is the baseline return LPs receive before the GP earns any share of the profits. For example, with an 8% preferred return, LPs get that 8% annually before the GP receives further distributions.
- Equity splits (waterfall) are the remaining profits split between the LPs and GP, often using a tiered system, after the preferred return is paid. For instance, an 80/20 split might apply until a certain IRR is reached, then shift to 70/30 or 60/40, rewarding the GP for exceeding benchmarks.
- Asset management fees are ongoing fees that compensate the GP for managing the property and the business plan. They’re often based on gross income or asset value and cover tasks like oversight, reporting, and investor communications.
SEC regulations and compliance
Raising CRE equity through syndication means you’re offering a security, which also means that you need to fulfil legal responsibilities. The Securities and Exchange Commission (SEC) regulates these transactions to protect investors. Sponsors must ensure that their deals meet exemption requirements under securities law, most commonly through Regulation D.
Regulation D exemptions
- Rule 506(b) allows you to raise capital from an unlimited number of accredited investors and up to 35 sophisticated but non-accredited investors. However, you can’t advertise or publicly solicit the deal.
- Rule 506(c) lets you publicly market your deal, but you must ensure that all investors are accredited and verify that status through documentation or third-party services.
It’s always prudent to work with an attorney who specializes in securities law when setting up a syndication because you will need to pay hefty fines for failing to follow SEC rules. You may also face lawsuits from investors or be forced to unwind of your deal.
Tips to build credibility and attract investors when raising capital for real estate investment
Credibility in CRE is built over time, and it starts before your first investor meeting. Here are some practical ways to establish this credibility:
Build a track record with small but successful deals
Don’t have large projects under your belt? That is not a problem. Investors just want to see that you have successfully operated smaller properties to get a feel for how you execute. You can also team up with experienced sponsors to gain firsthand experience and add credibility through partnerships.
Develop a professional investor presentation
Your investor deck is your first impression, so make it count. It should clearly outline the opportunity, the details about the property, the business plan and projected returns, as wel as you or your team’s credentials. Never make the mistake of submitting a disorganized or unclear presentation. It tells investors that you are not ready and will raise doubts before a single question is asked.
Build transparent financial models
Your pro forma must be detailed and defensible because investors expect a clear and realistic view of the deal’s numbers. Be upfront about your assumptions and walk investors through both conservative and optimistic scenarios.
Maintain consistent communication
Once someone invests, the real relationship begins, and you are expected to provide regular updates, performance reports, and distribution notices (whether monthly or quarterly). Make the process predictable and transparent to keep trust intact and improve your chances of securing future capital.
Show up where CRE investors are
Attend CRE events and pitch sessions, and stay active in online forums. These environments help you meet capital partners and peers as well as hear new ideas and grow your presence.
Build relationships early, not urgently
Don’t wait until a deal is under contract to ask for capital. You need to build real relationships with potential investors ahead of time. Share your investment philosophy and position yourself as a reliable operator so that you already have their trust when you do present a live opportunity.
Legal and compliance considerations in real estate capital raising
Understand Regulation D exemptions
Let’s dive deeper into the Regulation D exemptions mentioned in the previous section. Choosing the right exemption affects how you market the deal and the type of verification you must conduct.
Under Rule 506(b), you can raise unlimited capital from accredited investors and up to 35 sophisticated non-accredited investors. However, you can’t advertise publicly. You must already have a substantive relationship with each potential investor before discussing your deal.
Under Rule 506(c), you’re allowed to advertise your deal publicly, but you must verify that every investor is accredited. This means that you need to collect documentation or using a third-party verification service as investor self-certification isn’t enough.
Use proper legal documents
You need two documents to raise capital through CRE syndication:
- A private placement memorandum (PPM) is a legal disclosure document that outlines the deal terms, the business plan, project risks, and sponsor details. A solid PPM protects you by ensuring that every investor knows exactly what they’re buying into.
- A subscription agreement finalizes the investor’s commitment to the deal. It spells out the amount invested and affirms their understanding of the risks. It also confirms their accredited status (if applicable) and documents their role in the syndication.
Both documents should be prepared by legal professionals to protect you and your investors.
Work with an experienced securities attorney
Do not try to handle securities compliance on your own. A qualified attorney can help you:
- Choose the right exemption
- Draft your PPM and subscription agreement
- Understand solicitation rules
- Make sure that your offering complies with federal and state law
Know who qualifies as an accredited investor
Under SEC rules, an accredited investor includes:
- Individuals with a net worth over $1 million (excluding their primary residence)
- Individuals earning $200,000 annually for two years (or $300,000 with a spouse) and expecting the same this year
- Certain financial institutions and trusts with significant assets
You cannot just take their word for it. Under Rule 506(c), you must verify that each investor meets these requirements.
Common mistakes to avoid
It takes much than a good pitch to raise capital for real estate. You also need to know that common missteps new CRE players make and how to avoid them.
Underestimating capital needs and reserves
Unplanned repairs and delays can quickly burn through funds, so always include a contingency (usually 10–20% of renovation or development costs). It’s also prudent to keep enough reserves on hand to cover operating expenses when things don’t go to plan.
Overpromising returns
Never stretch the numbers just to make your deal look stronger. Overstated returns raise expectations you may not meet — and this can damage your credibility if the deal underperforms. Be conservative in your projections and make sure you clearly explain both the upside and the risks.
Failing to vet lenders and investors
Don’t assume that all capital is equal. A low interest rate doesn’t matter if your lender can’t close on time. Check their track record with similar properties and confirm they understand your asset type.
On the equity side, know your investors and make sure that they understand the business plan. If you’re using a 506(c) exemption, you must verify each investor’s accredited status through proper documentation or a third-party service. Difficult investors can disrupt a deal just as easily as bad debt terms.
Going silent after raising funds
The best way to maintain investor trust is through consistent communication. Share regular updates and financial reports. Announce any notable developments (good or bad).
Conclusion
There are three things to remember when raising capital for commercial real estate: Use a mix of funding sources, be realistic about your projections, and keep your legal and financial house in order. Your credibility will compound as you gain experience, and it becomes easier to raise capital with each successful deal.
Private Capital Investors specializes in structuring loans and capital stacks that match your deal strategy and support your long-term goals. Contact our expert team of private commercial real estate lenders today to discuss your next project.
Additional sources
- https://www.northmarq.com/insights/knowledge-center/understanding-capital-stack-commercial-real-estate-investing
- https://www.investopedia.com/articles/investing/021016/complete-guide-financing-investment-property.asp
- https://www.jpmorgan.com/insights/real-estate/agency-lending/what-is-an-agency-loan-why-use-it-for-multifamily-property
- https://www.investopedia.com/terms/c/cmbs.asp
- https://www.sec.gov/resources-small-businesses/exempt-offerings/private-placements-rule-506b
- https://carta.com/learn/private-funds/regulations/regulation-d/506b-vs-506c/
