First-Lien Position and Why It Matters

Where you sit in the capital stack determines whether you get paid first or last.

We sit first. Always.

If you're evaluating any real estate investment, whether it is a fund, a REIT, or a syndication, the first question you should ask is: where does my money sit in the capital stack? Most investors never ask that question. We want to make sure you understand why it matters.

The Capital Stack, Explained

Every real estate deal is financed by a stack of capital. At the bottom is senior debt. That's the lender who gets paid first and holds the first legal claim on the property. Above that might sit mezzanine debt or bridge loans. Above that, preferred equity. And at the top, common equity, typically the developer or the fund sponsor.

Here's the critical point: in a default or distress situation, you get paid in order from the bottom of the stack up. Senior debt first. Then mezzanine. Then preferred equity. Common equity gets whatever's left, which is sometimes nothing.

Stallion Capital always sits at the bottom of that stack: first-lien senior debt. That means in any default scenario, we move first.

What First-Lien Means, Legally

First-lien isn't just a phrase. It's a legal position.

It means we hold a recorded lien on the property, which is filed with the county, on public record, that gives us the right to initiate foreclosure proceedings if a borrower defaults.

In a foreclosure, we can take ownership of the property and sell it to recover the loan amount. No other creditor can interfere with that process until we're made whole.

A Default Scenario

Let's make this concrete.

Say we fund a $1,000,000 loan on a property appraised at $1,600,000. That's 62% loan-to-value (LTV), our golden standard.

Now say the borrower defaults, and the market has also declined, so the property is now worth $1,200,000. We initiate foreclosure and sell the property for $1,200,000. After costs, we still recover well over our $1,000,000 loan. Investors are whole.

For an investor to lose principal in this scenario, the property would have to decline in value by more than 38% from the original appraisal, and we'd have to fail to recover through foreclosure. That's a scenario that requires catastrophic market failure, not just a downturn.

First-Lien Plus LTV: Compounded Protection

Here's what we want you to understand: first-lien position and 62% LTV aren't two separate protections. They're compounded.

The LTV gives you the equity cushion. The first-lien position gives you the legal right to enforce it.

Without first-lien, the equity cushion is theoretical. Without conservative LTV, the first-lien position is less meaningful. Together, they create a structure that has protected Stallion investors through every market cycle for nineteen years.

How This Differs From REITs and Preferred Equity

A REIT (Real Estate Investment Trust) investor owns equity in a portfolio of properties. In a downturn, the value of those properties, and your investment, can decline significantly. You're exposed to market price movements in real time.

A preferred equity investor sits above debt but below senior debt in the stack. In a default, they don't get paid until the senior lender is made whole. They have a claim, but it's subordinate.

A Stallion investor is the senior lender. In a default, we move first. Our recovery rate is highest. That's the structural difference, and it's the reason first-lien private credit has historically delivered returns with significantly lower principal risk than equity positions.