One of the most valuable tools available to investors for evaluating and comprehending risk in direct real estate investments is the “capital stack”. For the purposes of commercial real estate, the capital stack is the different layers of financing sources that go into funding the purchase and improvement of a real estate project. Ideally, a real estate investment hits its business plan or pro forma target and everybody gets paid according to plan. But, like any investment, real estate has downside risk. The capital stack provides investors with valuable information about where they fall in the pecking order of cash flows, what that order means for risk of repayment and, ultimately, whether the targeted return on investment is worth the assumed risk.