Understanding Layers of Capital in Equitable Development Financing

Introduction

Equitable development projects often rely on a financing structure very different from traditional commercial real estate deals. Instead of a single lender and predictable equity, these projects are built using multiple layers of capital—each serving a specific purpose, reducing risk, or advancing community benefit.
For new equitable developers in Chicago, understanding how these layers fit together is essential for building financially feasible and mission-aligned projects.

1. Why Layered Financing Is the Norm in Equitable Development

Equitable development often prioritizes outcomes such as affordability, community ownership, historic preservation, or small-business support. These goals don’t always fit traditional lenders’ underwriting models. Layered financing helps bridge those gaps by combining multiple capital sources.

Layered financing allows developers to:

• Offset higher upfront costs

• Strengthen the project’s loan-to-value ratio

• Boost competitiveness for incentives

• Demonstrate community impact to mission-driven investors

This approach transforms seemingly challenging projects into realistic ones.

2. The Key Layers of Capital

A. Senior Debt

Usually provided by a bank or Community Development Financial Institution (CDFI).

• Lowest interest

• Strict underwriting

• Foundation of most capital stacks

CDFIs are often more flexible for early-career or community-focused developers.

B. Subordinate or Mezzanine Debt

Used to fill the financial gap above senior debt.

• Higher interest

• More flexible terms

• Helps avoid raising additional equity

C. Tax Credits and Incentives

Often critical for equitable development:

• Low-Income Housing Tax Credit (LIHTC)

• Historic Tax Credits

• New Markets Tax Credits

• TIF support

• Cook County Class 7, 8, and 9 property tax incentives

These tools can reduce total development costs or generate equity.

D. Grants and Soft Funds

Provided by:

• City and state programs

• Philanthropic foundations

• Nonprofit lenders

These reduce the need for debt but often require competitive applications.

E. Developer Equity

Even small contributions matter. Equity may come from:

• Savings

• Partnership agreements

• Mission-aligned investors

• Sweat equity

Equity strengthens applications and demonstrates commitment.

3. How These Layers Work Together

The challenge—and opportunity—is blending these sources into a cohesive capital stack that:

• Meets lender requirements

• Aligns with incentive rules

• Maintains financial feasibility

• Delivers community benefit

For example: tax credits attract investor equity, grants reduce development cost, and subordinate debt closes the remaining financing gap.

4. Challenges New Developers Often Face

Common challenges include:

• Long approval timelines

• Conflicting program rules

• Difficulty sequencing funds

• Limited familiarity with incentive requirements

These challenges don’t make equitable development impossible—they simply require strong guidance and a reliable advisory team.

5. How I Can Help

My role is to help new equitable developers get oriented in a complex financing landscape and connect them with the right experts and resources. I act as a guide and connector—making it easier to find accurate information, identify relevant programs, and build the advisory relationships necessary to move a project forward.

I support developers by:

• Pointing them toward incentives and programs that may align with their project goals

• Connecting them with CDFIs, mission-driven lenders, and industry professionals who specialize in equitable development

• Researching the landscape of grants, incentives, and funding tools so developers can understand what is available

• Helping developers understand typical timelines and sequencing to better plan their development path

• Referring them to specialists—such as zoning attorneys, incentive consultants, and financial advisors—who can formally structure the capital stack

I help developers gain clarity and assemble the right team so they can move forward with confidence.

Conclusion

Layered financing is at the heart of equitable development. By understanding how different funding sources work together, developers can approach projects with greater confidence and build structures that support both financial feasibility and community impact. If you’re exploring a new project and want guidance on what funding tools might be available, I’m here to help you find the information and connections you need.