Case Study: Construction Finance with Minimal Equity


With a really good quality small luxury residential townhouse development on the Gold Coast – but with other projects in various stages of their pipeline – these well experienced young developers were light in cash to meet equity contribution requirements of senior debt lenders.


Having a small amount of equity to contribute to a project, demanded a requirement for either Mezzanine Debt or Preferential Equity. But doing that can actually cause another problem that people often don’t realise. Many lenders, bank and non-bank, want to see a minimum amount of “real equity” being contributed to a project by the developers themselves. As you should expect, banks are generally the most restrictive on this; as for non-banks, the expectations can vary significantly.

In regards to the possibility of bank funding for this project, they would also want pre-sales – which in this instance was considered to not be the best option given market values were increasing rapidly during 2021-22.


With a Preferential Equity facility being provided by STAC itself, the equity contribution from the developers amounted to only about 4% of Total Development Cost.

We then required a non-bank lender that would accept such a small amount of genuine equity – which was negotiated with a senior debt construction financier with whom STAC has a strong relationship, at a 70% LVR (on GRV exc GST) with a nil pre-sale hurdle.

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