Real Estate Debt vs Equity: Why Private Lending Wins in 2025

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In this conversation, Vincent Balagia, the founder of Stallion Capital Management, discusses the current state of the real estate market, focusing on private credit and debt investments. He explains the differences between real estate debt and equity, the demand for stable investments, and the importance of networking in the industry. Balagia shares insights on market predictions, construction costs, and the future of real estate in Central Texas, emphasizing the need for adaptability and caution in investment strategies.

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Vincent Balagia (00:00)
And the big difference is in the capital stack. And so the capital stack is, if you imagine what it takes to say buy and buy a property, this is 100 % the property. Typically you have the first 60 to 70 % being debt, which is what we provide. And then the top 30%, maybe being all equity

So you’re exposed to all of the risk, you have that upside as well, but you do have a downside. Instead, if you’re a lender.

you have that first 70 % and you actually have a little bit of a buffer up top that you can have variations in real estate values that doesn’t really affect your basis.

Michelle Kesil (02:09)
Hey everybody, welcome to the Investor Fuel podcast. I’m your host, Michelle Kesil And today I’m joined by someone that I’m looking forward to chatting with, Vincent Balagia who has been making serious moves as the owner of Stallion Capital Management and a private credit real estate lender. So really excited to have you here today, Vincent.

Vincent Balagia (02:40)
Thanks, Michelle, appreciate being on the podcast. Looking forward to chatting about everything that’s going on in the local real estate markets and providing anything that I can that’d be helpful for your listeners. ⁓

Michelle Kesil (02:51)
Yeah, absolutely. So first off, for those not familiar with you and your world yet, can you give the short version of what your main focus is?

Vincent Balagia (03:05)
Sure. So we’re both an investment management company and a private lender.

And so we lend against real estate projects. We are located in Austin, Texas. So in some ways, we’re a little bit like a small bank in that on one side, we have borrowers that are coming to us to borrow money against real estate on the commercial side, on the residential side as well, some multifamily. And then on the other side, we have investors that like to put capital into our private funds. So for credit investors, we have funds that provide

stable returns and also for family offices we do a lot of one-off projects and we have co-funding opportunities. So on one side you have the borrowers who are looking to do the projects on the other side the investors that wanted to earn a great rate of

while still keeping their money in a safe asset. So we put those two people together and produce great real estate. So finance a lot of new construction. Done a lot in Austin, Dallas, and San Antonio. We do kind of limit ourselves to the central Texas area along Interstate 35. You have Dallas in the north and Austin, San Antonio in the south.

We’ve been operating for almost 20 years. And it’s still, even though real estate is challenge right now, it’s still a great time to be in real estate debt because you don’t have all of the ups and downs with real estate ownership, like equity investing, and you can still earn a great rate of return. So we’re very busy. Not that the market doesn’t have its challenges, it does, but we have a ton of demand for capital right now, and we are in full capital raise to try to satisfy that demand.

Michelle Kesil (04:49)
Awesome. Yeah, that’s an interesting perspective you shared on it being a good time on the debt side. I would love for you to expand on that for maybe those that aren’t aware of this side of the business.

Vincent Balagia (05:06)
Sure, I’d be happy to, Michelle. So the big difference between real estate debt and real estate equity, Debt is when you are a lender to a borrower, and equity is when you are an owner of property. ⁓

And the big difference is in the capital stack. And so the capital stack is, if you imagine what it takes to say buy and buy a property, this is 100 % the property. Typically you have the first 60 to 70 % being debt, which is what we provide. And then the top 30%, maybe being all equity or maybe there’s a little bit of mezzanine debt and then equity. So if you’re an owner, you are exposed to all of this equity. Now there’s good and there’s bad about that.

The

good thing is that you get the upside. So if you have say a million dollar house that you’re a builder, you built a million dollar house and you have appreciation in the market, fantastic. Now it’s worth 1.1, 1.2, you take a gain on that because you own all of that property. But the other side is true as well. If you start at a million dollar value and the market falls, now maybe it’s worth 900,000 or maybe 800,000.

So you’re exposed to all of the risk, you have that upside as well, but you do have a downside. Instead, if you’re a lender.

you have that first 70 % and you actually have a little bit of a buffer up top that you can have variations in real estate values that doesn’t really affect your basis.

So you can have a significant dip in real estate value without it affecting the value of your investment, is debt in this case.

So real estate equity is just by its nature a little more risky. Of course, you have greater return. On the lender side, really the best return you can have is whatever the interest rate is.

And some banks are lending at maybe six, seven, eight percent, sometimes nine. We’re lending typically from 10 all the way up to maybe 14 percent, depending upon the type of property. They are short-term loans, but because we are putting investor capital into those loans, we get to take advantage of the bottom side of the capital stack where there is less risk. And while we may not have the great upside of owning real estate, ⁓ still a ⁓ 10.

or a 12 or a 14 % return on our capital is not a bad return, especially right now when there is a lot of volatility in the market. you kind of know what you’re getting as far as a return on the debt side. Again, your upside is capped, but if it’s a good enough rate of return, then fantastic. Where again, on the equity side, that’s where you can have a great gain, but you can also have a great loss. And that’s the big difference between the two.

Michelle Kesil (08:49)
Yeah, that makes a lot of sense, especially with how things are going economically right now. So thank you for explaining that. So what are you most focused on solving or scaling next in your business?

Vincent Balagia (08:59)
sure.

So it’s a great question. So we’re focused on a couple of things right now, because the real estate markets are uncertain. We’re really kind of pulling back from a lot of commercial properties. We’ve pulled back from multifamily, pulled back from office, and we’re looking at a lot of residential, new construction.

⁓ In infill areas, so we finance a lot of builders that might put anywhere from five to twenty five units on the ground during a given year and Most of those are going to be infill properties infill being within the cities or within dense population areas and in our target market and Then we’re also focused on launching a new fund. So we’ve run funds for over a decade now and I think simplicity and

maintaining strong risk standards. I feel like they’re really kind of leading the day. So this new fund is going to be called the Investor First Fund. Very simple. It’s a monthly return at an annual interest rate, eight and a half percent. And what we’re doing is deploying that primarily into residential properties in the Central Texas market. So good real estate market. It’s called Investor First because all of the interest from the loans and all of the origination fees, anything where revenue is generated.

that

is being put into that fund, and the investors are then being paid first before any management fee or any other type of expenses that would go into that fund. So investors are paid first at an 8.5 % rate. Anything above that is going to be kept by the manager, which is signed capital management. But what we found is that if we can meet investor expectations on a consistent basis, we can keep our investor base really happy.

And if we’re going to smaller projects, being on the residential side, and for us, smaller means loans of anywhere from $500,000, maybe up to $2 million or so, but that is on the small side, when you look at real estate debt in general, then we can have a very well diversified fund to keep those returns very consistent to make sure that we’re hitting that 8.5 % annual return, making those payments monthly. And that’s one thing we found is that…

Investors really like monthly payments. lot of our, ⁓ the funds that we have right now are quarterly based. So every quarter they’ll receive a distribution and that’s fine. But there’s something about getting a check in your mailbox every month or getting an ACH deposit into your account every month that you can count on. And being that it is consistent in the fixed rate, that’s really something that we’re finding that investors are enjoying right now. Especially when you have…

volatile markets where some things are doing really well, some things are doing really poorly, it’s nice to have some stability and some predictability on the investment side. So that’s really responding to the market on that side. And individual or credit investors really like the idea of that type of fund. And a lot of registered investment advisors that are independent, that are looking for a fairly safe investment with a strong rate of return that’s consistent, they’re signing up as well. And they really like the idea.

of what we’re doing. But that fund is designed for accredited investors, investment size that range anywhere on the low side, about $100,000, up to a couple million dollars. It’s most appropriate for the investor first fund. So that’s our main focus. And then second to that, we are ⁓ developing a lot of relationships with family offices. What we find with family offices, especially single family offices,

is that they want to go into their own projects or maybe into a portfolio of their own projects. They don’t really want to go into a fund necessarily. And as long as they have experience and the financial wherewithal, that can make a lot of sense for them. And so while on the one side we’re launching this new Investor First Fund for credit investors, on the other side we have larger family offices that are looking at putting deployments of five, 10, 20 million dollars into one or multiple loans at a time.

And we’re finding a lot of success on that side. It feels like a lot of the family offices, they are staying away from the real estate equity side because they’ve been burned a little bit with multifamily and some other equity projects over the last couple of years. And they’re looking for that stability as well. And they’ll probably be in that market for the next 18 to 24 months or until they really see that the equity real estate markets have really solidified a little bit and they have cap rates that they can count on and net operating.

income that is a little bit more stable, maybe growing rents, then they’ll probably move back to equity. But for right now, it seems like both of those markets are really wanting to go into more the fixed income side, or what you might call private credit. And that’s really what we are. We’re a private credit provider to our borrowers, and then we are a private credit investment provider.

to our investors and that’s really what seems to be very popular right now because of the certainty, because of the predictability and still pretty decent rates of return. So that’s the focus.

Michelle Kesil (14:59)
Yeah, that’s awesome. I love that. You explained it so well for both segments that you’re operating in. That’s very helpful. And as far as the markets and, you know, there’s a lot of unpredictability, but based off of like your experience and your knowledge, what do you kind of foresee?

happening to at least like the markets that you’re local to.

Vincent Balagia (16:13)
So, great question. I think that what seemed to happen is Austin and Dallas, central Texas, seemed to slow down first. And it feels like right now there’s some stability on the realistic value side.

and just a little bit of increase on the real estate transaction side. I do think we’re going to be in a higher rate ⁓ market environment. If you look, the Federal Reserve has taken very, very slow steps towards ⁓ reducing the federal funds rate, which is probably fine because we still are in a somewhat inflationary environment. We are above that 2 % target that the Fed likes to hold to.

So I think that the play right now is to stay in safe assets, not to put too much risk into any one loan or any one project.

And so that’s really what our strategy is right now. I think that you are going to have a better real estate year for 2026 than you did in 2025. But I don’t think it’s going to be coming back gangbusters. I think one thing that people are looking at right now is what’s the absorption going to be like on a lot of multifamily and apartment projects. And if that starts to get a lot better… ⁓

then you’re going to see more money flow into those equity projects. There’s a few that we’re looking at right now ourselves that are early on and everyone is wanting to see first that the inventory that’s there is going to be absorbed. Then you’ll start to see some rent depreciation. Then you’ll start to see some more people come back into the market. So that’s on the multifamily side that’s been so popular over the last 15 years or so that has really burned a lot of people over the last two years.

So again, it’s not going to come back the way that it was without some interest rate help, but I think it will become healthy again probably end of first quarter 2026, maybe end of second quarter 2026. It just depends upon those rent growths.

⁓ Office is ⁓ still ⁓ anyone’s game. If you’re really good at the office game and you can get in really cheaply right now, which you can at well below replacement cost on lot of markets.

If you can be a long-term player there ⁓ and you can generate enough revenue to cover expenses, that can be a good thing right now. I think industrial is a little bit stronger, but it depends upon where in the country you’re looking and what the current supply is. Some places really don’t have enough supply on the industrial side, and this can be light industrial as well, office parks, things like that. That’s a place that we’re looking right now ⁓ to maybe deploy some new capital and some loans.

But I do feel like residential and growing markets does make sense. I don’t think rates are going up, but you have to be realistic with time on market. For a long time in Central Texas, we were looking at times on market of 30 days, 60 days.

The supply of two months was a lot. Now we’re kind of up at the four to five to six month supply, depending upon the city. And a of people would call that balanced, but I don’t really think it’s balanced anymore. I think it’s much more of a seller’s market. I’m sorry, much more of a buyer’s market now. I think anything over about three months is a buyer’s market, or they used to call it balanced at six. It doesn’t really work that way anymore. So if we can get those months of supply down, I think we’ll be back on track ⁓ to be.

in an appreciating market, but until then we’ll be fairly flat.

Michelle Kesil (19:54)
Yeah, that makes a lot of sense based off of the history and the observations of where things are heading. So that’s good info for people to have.

Vincent Balagia (20:08)
Thanks, I appreciate that, Michelle. But I think overall, it’s a time to be careful, to make sure if you’re going into a real estate project, there’s plenty of margin, because that margin will probably be squeezed. The good news is that construction costs have come down.

Michelle Kesil (20:11)
of course.

Vincent Balagia (20:29)
materials cost have come down. So if you are a builder or developer, you’re probably getting a much better deal than you have over the last five or six years. I was talking with one developer yesterday over lunch and he was saying that construction prices are back to where they were around 2018. So that’s a big fall in prices. And so if you have the capital to be able to go into a project and you have that end user or that end buyer,

right now could be a great time to start a new project and lock in your construction costs so that as you’re building over the next year or two that you get to enjoy those low prices and then at the end of the day have more profit if you’re exiting in 2026 or 2027 on projects. So probably a good time for that but you’re just going to have to have a little bit more risk tolerance and probably need to use lower leverage than you’ve had over the last decade or so. So instead of borrowing 70 or 80

80 or 85 percent, it’s probably borrowing more like 60 or 65 percent, raising some more equity ⁓ on the cash side.

just to make sure that you can make it through these difficult times and longer selling periods. But if you can, then you’re probably setting yourself up fairly well for end of, mid to end of 2027. We think that’s going to be kind of a back at a time where a lot of real estate markets will have opened up a little bit. We’ll probably have lower interest rates, more absorption on the multifamily side, and just a more freer flowing market is our prediction internally.

but we’ll have to see. We have to be ready for anything, so that’s one thing. It’s very important to be adaptable and to look at and see what could be happening. So we don’t see rates going up. Probably rates staying the same, we’re coming down slowly. And I think it’s going to be very important to look at where people are going, where businesses are going, to try to make the best choice about where to do your project. And we’d love to talk to people.

the financing side to see if can help them out. Happy to always sit down and chat about a new project and see what makes sense and what can work and if we can provide capital for them, great. But again, like we said, the focus right now for us is trying to satisfy the demand that we have. We have probably more demand than ever, so we really need to go raise capital from credit investors and family offices to make sure that we can satisfy that. But it’s a good time to be in debt. It’s a good time to be a lender. ⁓

I think that the future in Central Texas real estate is bright. So looking forward to it.

Michelle Kesil (23:10)
Yeah, absolutely. That’s exciting to have that forevision for what’s coming for the future.

Vincent Balagia (23:19)
I think it’ll be good.

Michelle Kesil (23:21)
Yeah, absolutely. As far as networking and relationship building when it comes to business growth, what are some things that have made the biggest difference for you?

Vincent Balagia (23:38)
It’s a good question on the networking side. So this year we have done a number of family office events. ⁓ You have companies like the Family Office Club, Opal events, ⁓ a number, I think the DC family office events that happen around the country. I’ve been in New York. I was at an event ⁓ last Friday called Jets in Capital ⁓ on

the USS Intrepid. ⁓

New York City, the Intrepid is an aircraft carrier and was hanging out with family offices and providers on the flight deck, which was pretty cool for those ⁓ aviation buffs. had a SR-71 Blackbird up top and an old Tomcat and a bunch of other jets. That was pretty neat. So kind of making the round there, we’re going to be in Napa ⁓ later this month at an Opal family office conference that’s there. So I think that the conferences are really

right now where you have a lot of capital coming together and looking for opportunity. Also looking for good advice, trying to make sure that people are going into stable investments that have good upside. ⁓ You’re not seeing huge returns right now. You are still seeing a lot of capital go into AI data centers, especially as far as kind of that AI play on real estate. I do think it’s important to be careful with that because you do see a lot of changes.

on the AI side, whether it’s kind of your storage AI or it’s your computational AI, kind of the things that are needed on both of those sides. Power, ⁓ access to power, cheap power generation seem to be a really big theme on the real estate side and you are seeing some fairly big projects that people are chasing after and wanting to participate in. There’s also… ⁓

a local group that’s run here by a guy named Romney Navarro, great guy.

called Deal Makers and that’s a little bit more on the side of ⁓ places that or projects that are looking for capital. So he’s developed ⁓ really a great organization there where he’s got a lot of people that are looking for capital to put into good projects and so it’s really kind of bringing those two worlds together. The capital world, the project, the opportunity world and making sure that we’re deploying capital in good places. ⁓ The other places that I think are

are

good for networking right now are some of your, at least on our side, the home building associations, and then partnering with like-minded people. We just did an event at a new ProSource that is here in Austin. ProSource is a large building supply company that’s national, and there was just a grand opening. The general manager is a friend. We went and sponsored a car show. I’m kind of a car guy, so.

brought a car out there, had some fun, ⁓ but really trying to get to where your clients can be if you’re trying to network on the business side is really kind of the big deal. So we’re looking at aggregation points, what are people naturally coming around? And then one thing that we’re doing, like say at this NAP event coming up in a couple weeks, is we’re hosting a happy hour, we’re trying to be invitational and create a nice environment for everyone to come, have a good time, enjoy themselves, and let it really just happen organically.

Hopefully we can provide value for people, great. If not, hopefully we can just make a connection that they need that can help them take advantage of the next opportunity, whether that’s through capital or looking for the right place to put money.

I think there is a lot of money looking for a home right now. And so making sure that you can do business with someone that you trust is a really big deal. And trust comes from relationships that are already there, track record, and then on the real estate side, being able to go out and actually take a look at current projects that are on the ground or past projects. I think that’s one advantage of real estate is you can kind of see what that product is by going in and taking a look at what’s physically

on the ground, it makes a big difference than some of the private equity or some of the business investment that’s out there right now where you’re kind of investing into an idea versus something that’s tangible. So it’s always the way that I like to invest is putting money into something that I can go visit, that I can go see, that we can check on the progress of. It’s a nice way to invest. It’s a little bit slower. The returns might be a little bit less, ⁓ but overall it’s a little bit smoother ride.

Michelle Kesil (28:20)
Yeah, absolutely. That’s valuable. Thank you for sharing that. So before we wrap up here, if someone wants to reach out to you, connect, learn more about what you’re doing, where can people find you?

Vincent Balagia (28:36)
So couple places, if you need money, if you need capital for your project, hit us up on stallionfunding.com. And if you have too much capital and you need to deploy some with us so we can make you some more money, hit stallioncap.com. That’s for stallion capital. So the funding is the borrower side, the capital is the investor side. Again, if you’re an accredited investor, we have a fund that’s simple, predictable, and can make money for you. If you’re a family office side.

move into individual projects or perhaps a portfolio of projects and you want to significant capital out, we can put it to work very quickly at pretty attractive rates. So, Stallion Funding, Stallion Capital would love to serve you. And if we’re not right for you, we’d love to point you in the right direction where you can find value and great people to do business with.

Michelle Kesil (29:30)
Perfect. Well, listen, I appreciate your time, your story, and your perspective. Thank you for being here.

Vincent Balagia (29:38)
Thank you, nice to meet you, Michelle. Enjoy your trip and catch when you get back. Take care.

Michelle Kesil (29:43)
Yeah,

of course. Yes. And for those listeners tuning into the show, if you got value from this, make sure you’ve subscribed. We’ve got more conversations with operators building real businesses. See you on our next episode.

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Real Estate Debt vs Equity: Why Private Lending Wins in 2025

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