Property development finance describes funding used to (1) acquire a site, (2) build the project, then it’s either repaid when the finished stock sells or (3) residual stock is refinanced. In Australia the capital stack is often just senior debt, sometimes topped up with mezzanine debt; less often (for various reasons including lack of widespread availability) with preferred equity or joint venture equity.
Gearing is measured against gross realisation value (GRV) and/or total development cost (TDC).
That’s the entry statement to Development Finance 101 – this guide continues the 101 course, explaining how development finance works, what the numbers mean, what lenders look for, and how STAC Capital structures these deals.
What Development Finance is
Development Finance is an “umbrella term” of sorts, covering up to three main phases of a project: buying the land, building on it and, refinancing any unsold stock thereafter. Unlike a standard term loan, it is drawn progressively on agreed timeframes (typically monthly) or, for smaller projects, as construction hits agreed milestones; and rather than assessing ability to repay based upon personal or business income, it is assessed based upon the ability to repay from a defined exit, usually settled sales or a refinance onto either an interim- or long-term facility.
Because the lender’s security is a project that does not yet exist in its finished form, lenders price and structure for that risk. Rates, fees and conditions reflect the stage, the sponsor and the strength of the project.
The Capital Stack explained
The term “capital stack” (and yes, our name STAC Capital does have something to do with that!) describes the multiple layers of capital in a project, ranked by risk and repayment priority. Most small projects have just two layers, (1) your equity and (2) the debt; as projects get larger and more complex, there can be numerous layers of capital, including mezzanine debt, preferred equity and joint venture equity. Getting the stack right is what allows a developer to proceed with less of their own cash tied up, maximising Return on Equity. Getting it wrong however, can chew out all of the project’s profits and obliterate the developer’s equity.
Senior debt (first mortgage)
Senior debt is the largest and cheapest layer. It sits in first-ranking position, so it is repaid first; if anything goes wrong, it gets 100% of its capital and returns back before anyone else in the capital stack gets a single dollar, so its relatively-low risk should be priced accordingly. Most projects are anchored by a senior facility from a bank or a non-bank/private lender of varying sorts.
Mezzanine debt (second mortgage)
Mezzanine debt (also known as “mezz”) sits behind senior debt in second position (and FYI the term “mezz” is often misconceived as meaning any form of non-bank or private debt; but just like the mezzanine floor in an industrial shed, it really does just basically mean the little lightweight bit above the main solid section!). It fills the gap between what senior debt covers and the equity a developer has available or chooses to contribute. It carries a higher rate because it takes a lot more risk than the senior (again noting that the mezz must lose 100% of its capital before the senior risks losing a single dollar), but for a healthy feasibility and injected at the right time, the reduction in cash that the developer must contribute can drive a significantly higher Return on Equity (RoE) (and for more complex projects and borrowers, IRR on Equity – but that’s a lesson for another article!).
Preferred equity
Preferred equity ranks behind both the senior and mezz, but ahead of the developer’s own equity. When people ask me “what is pref?”, my simple answer is “it can mean just about anything, it’s just not quite mezz, nor is it ordinary equity, it’s just somewhere in between”. It’s about as grey as development finance gets. At one end of the scale, it can be priced just like mezz, with a pure interest rate (also described as a “coupon”) but perhaps without a registered mortgage; at the other end it can be pure profit sharing, and then it can also be somewhere in between with part-coupon part-profit-share. It is most often used to stretch total funding even further than where mezz might be comfortable to reach to, when a developer wants to preserve capital for other projects and is willing to give away more of the project profit than mezz might cost. It can also be used to leverage further than a bank is willing to allow mezz to be written (which is typically a 50/50 split on mezz/equity). The term “preferred” or “preference” comes from the simple fact that, just like senior and mezz, it has priority over the equity in the capital stack – meaning that the sponsor’s equity typically needs to be completely wiped out, before the pref loses their money (but just like I said, there can be grey to that too, it all depends on the deal!).
Joint venture equity
Joint venture (JV) equity is a true equity partnership, wherein the JV partner co-invests in the project, usually either by cash or providing the land, then shares in the profit rather than earning a fixed return. It is the most expensive form of capital because the partner takes genuine project risk alongside the developer. Usually this is in some form of “shoulder to shoulder” risk, meaning that if the project over-performs, both get to share in it together; conversely, if it incurs losses, both will share in the losses together.
STAC Capital regularly structures the senior debt through to pref equity, and has on selected instances also assisted in arranging JV equity. We do this via our relationships with more than 400 lenders and capital sources, including banks, second-tier banks, non-bank fund managers, private lenders and UHNW investors (as well as our own capital in selected circumstances).
The key metrics: GRV, TDC and LVR
Three numbers drive almost every development finance decision.
Gross Realisation Value (GRV) is the total expected sales value of the finished project, usually assessed net of GST. It is the “as if complete value” that banks and lenders are almost always most heavily focused on.
Total Development Cost (TDC) is everything it costs to deliver the project: land, construction, contingency, professional & consultants fees, marketing costs, statutory and government costs or contributions, finance costs. It is worth noting that not all banks and lenders assess TDC the same, so an 80% TDC may mean different things to different lenders, as some will include absolutely every cost, whereas others will exclude some costs that they [for whatever reason] don’t consider to be value-adding.
Loan-to-Value Ratio (LVR) (also known as LTV) is the loan expressed as a percentage of the GRV (although some banks/lenders will incorrectly use the term based upon TDC).
Loan-to-Total Cost (LTC) or Loan-to-Cost Ratio (LCR) (also sometimes called LTDC or even LTDCR) is the loan expressed as a percentage of the TDC.
Typical Gearing
Firstly, take note that what we’re writing here is correct as at the date of writing (originally July 2026). As a general guide in the current market, BANKS typically max out at 75 to 80% of TDC, or 60 to 65% of GRV, whichever is the lesser; NON-BANKS or private SENIOR lenders are commonly willing to fund anywhere from 65 to 75% of GRV (exc GST) and sometimes as high as 80%. Some non-banks/privates will have TDC limits of anywhere from 80 to 90% of TDC, some don’t look at it all. Adding mezzanine debt or preferred equity can lift total funding to around 85 to 90 per cent or even more of TDC, at a higher blended cost.
Can you finance 100% of TDC? Many brokerages advertise that they can fund that through debt only, but nearly every time we’ve looked into the detail, their claims are misleading. Firstly, debt financiers almost always want to see the sponsor having some degree of “hurt money” in a project; having said that, we have achieved funding of 99 to 100% of TDC on projects. That does come with a catch though, it doesn’t mean just anyone with no money or assets can contract a site, find a contractor and get it 100% financed; but for well experienced sponsors with healthy financial positions, a site that has been contracted with time to settle, during which value has been added by “lining up the ducks”, then 100% or close to is possible.
Pre-Sales and Debt Cover
Pre-sales are contracts to sell stock subject to completion, and they are one of the biggest levers in development finance.
To be considered a “qualifying pre-sale”, banks and non-banks will typically require the contracts to be unconditional, to unrelated or “arm’s length” buyers, with minimum deposits typically ranging from 5 to 10% (even as high as 20% for foreign buyers), often with restrictions on deposit bonds vs cash or bank guarantees. Other required terms include sunset clause dates being a minimum time after forecast practical completion (often minimum 6 months plus the developer having sole right to extend another 6 months) and a limit on the number of sales to a single purchaser.
The term Debt Cover refers to the percentage of the project debt facility (or facilities) that needs to be covered by unconditional pre-sales. For example, if your loan is $10,000,000 and the bank wants 50% debt cover, that means you need at least $5,000,000 in pre-sales, net of GST (and also net of agent commissions, for some lenders).
Major banks almost always require some degree of pre-sales cover; the amount required varies massively based upon market conditions and specific banks’ risk appetites. There have been times in the market where banks have wanted at least 100% and even 120% debt cover; as of mid-2026 however, banks are often agreeing to 50 to 70%, and even as low as 30% for affordable residential product in locations that are experiencing critical undersupply.
Non-bank and private lenders often fund with limited or nil pre-sales hurdles, where the project and the sponsor stack up. As an example, throughout 2025-26, STAC Capital arranged many stretch-senior construction loans up to $25M at up to 75% of GRV with nil pre-sales, allowing the developer to start without waiting on the market.
Bank versus Non-Bank and Private lenders
Banks offer the lowest rates and fees, but that comes at a cost – they apply the tightest tests: higher pre-sales hurdles, more conservative gearing (lower LVR), fixed-price building contracts and a more-experienced sponsor. They also take longer to assess an application, even when it is presented on a silver plate with a pretty bow on it, like we do at STAC Capital. For a well-presented, low-risk project, a bank can be an optimal solution for senior debt.
Non-Bank and Private lenders come at a price, but for that they take more risk: offer higher gearing, faster decisions and more flexibility. That trade-off can be worthwhile when speed, a light pre-sale position or a tight settlement matters more than the last few basis points.
We always say that there’s rarely one “best” or “right” way to finance a project. It depends on the project, the timeline, how the whole stack prices out, as well as a sponsor’s own risk appetite; some developers are willing to pay top-dollar for a lender providing eye-watering gearing with nil pre-sales, whereas other developers prefer the comfort of putting more cash in and having half the project sold before they turn dirt. STAC Capital’s role is to work through various funding options for developers and run a market process, rather than just finding “a deal” or taking the first offer.
The Development Finance timeline
1. Site Acquisition. Finance to settle the land, sometimes before a development approval (DA) is in place. This tranche is required when you need to settle the site, but you’re not yet ready to start construction.
2. Construction. The facility is drawn progressively against a quantity surveyor’s assessment as construction works are completed, typically monthly (or, for small constructions, at market-norm contracted milestones). This is the longest and most closely monitored phase.
3. Residual Stock. Once the project reaches completion, any unsold stock can be refinanced onto a residual stock facility, which repays the construction loan and gives the developer time to sell without pressure, rather than discounting to hit a hard deadline. These can also be used as an “equity strip” or “cash out” to release cash to put towards the next project in a developer’s pipeline.
Costs and fees at a high level
Development finance carries more moving parts than a standard loan. At a high level, interest rates and fees should reflect the risk they’re taking, the layer in the capital stack and lender type. The key components of pricing include the lender’s establishment fee, the broker’s fee, the interest rate and line fee, as well as third-party costs such as valuation, quantity surveyor and legal fees.
Interest Rates vs Line Fees is where we see many developers and brokers not truly understand the real cost: with a progress-draw construction loan, a line fee is NOT equivalent to an interest rate. We often hear people say things like “8% rate and a 3% line fee, so that’s 11% all-up”. But that’s far from accurate.
A line fee is payable on the entire limit, even when the loan balance is zero. The interest rate however, should (and note the word SHOULD, as there are more than a few dodgy private lenders out there who will hide in clause 43(b)(ii) that the interest is payable on the full limit!) be payable only on the actual balance, usually calculated daily and capitalised monthly.
Because a construction loan’s balance over the life of the loan will typically average around 55-65% of the facility limit (depending on timeframes and the construction’s “S-curve” profile), that means a 3% line fee is equivalent to more like a 4.5 to 5.5% interest rate. So in the above example, an 8% rate and 3% line fee, might actually be more like a 13% rate, not 11%.
The only way to truly compare, is to model it properly based upon your project’s timeframes and cash flow forecast – which is what we do with all terms sheets we receive from lenders for our clients’ projects.
Non-Bank and private facilities generally cost more than bank facilities in both rate and fees, reflecting higher gearing and speed. Mezzanine and preferred equity sit higher again on the cost curve because they take more risk.
The cheapest headline rate is not always the best net outcome. A slightly dearer facility that funds a project faster, with less equity locked up, can produce a better result across the deal. All figures vary by lender, project and market conditions, so it’s critical that you have a detailed discussion with a development finance expert, considering your views on the market and your risk appetite.
What Banks and Lenders assess
Understanding what a lender is actually focusing on, lets a developer present a project the way credit teams want to see it.
- Sponsor track record. Past completed projects of similar scale and type reduces perceived risk.
- Planning approvals. The development and building/works approvals status and any conditions attached.
- Builder and contract. A capable, suitably-experienced builder (on the type and scale of your project) on a fixed-price, fixed-time contract, which controls construction risk.
- Contingency. Around 5 per cent is standard for third-party built-form contracts and up to 10% for land subdivisions. For builder-developers, expectations can range anywhere from 5 to 10%. Provisional sums and prime-cost items are not fixed, so they carry cost risk that may impact a lender’s expectation for contingency (and you should also consider your risk, and whether it’s actually in your best interest to have that buffer up your sleeve).
- Quantity Surveyor. An independent QS to verify costs and certify progress drawdowns is almost always required.
- Market depth. Genuine demand for the finished product at the assumed prices.
- Exit and refinance risk. A credible plan to repay at maturity, through sales or refinance.
How STAC Capital helps
STAC Capital is an Australian commercial and development finance broker and debt advisory firm based in Brisbane, working across South East Queensland and regional Queensland, Sydney, Melbourne, Canberra, as well as regional New South Wales and Victoria. We have also on occasions assisted with projects in South Australia, Northern Territory and Western Australia. We have settled more than $2bn and we structure the full capital stack for developers.
For developers, that means one point of contact to shape the feasibility, structure the capital stack, and position the deal optimally with the right banks and non-bank lenders.
If you have a site or a project in mind, talk to STAC Capital about how to structure the finance.
Frequently asked questions
What is property development finance?
It is funding used to acquire a development site and construct a project, as well as residual stock finance, drawn progressively during building and repaid when the finished stock sells or refinances. It is usually structured as a capital stack of senior debt and equity, then where needed, mezzanine debt, preferred equity or JV equity.
How much can I borrow for a development?
As a general guide, senior debt commonly reaches anywhere from 60 to 80 per cent of GRV, with mezzanine or preferred equity lifting total funding to as high as 80 to 85 per cent of GRV. The actual figure depends on the project, the sponsor and market conditions at the time.
Do I need pre-sales to get development finance?
Not always. Major banks usually require substantial pre-sale cover, but non-bank and private lenders may fund with limited or nil pre-sales where the project and sponsor are strong. STAC Capital has arranged funding as high as 75 per cent of GRV with nil pre-sales, and even higher than 80 per cent with pre-sales.
What is the difference between GRV and TDC?
GRV is the total expected sales value of the finished project, usually net of GST. TDC is everything it costs to deliver the project, including land, construction, fees, finance costs and contingency. Lenders gear against both.
What is mezzanine finance in property development?
Mezzanine debt is a second-mortgage layer that sits behind senior debt and fills the gap between senior funding and the developer's equity. It carries a higher rate because it takes more risk, but it reduces the cash a developer must contribute.
How long does development finance take to arrange?
It varies with the lender and the project. Banks take longer because of their internal processes, while non-bank and private lenders can move quickly.
This article is general information only and does not constitute financial, legal or tax advice. Figures are indicative, vary by lender, project and market conditions, and are current at the time of writing. Finance is subject to lender approval, terms and conditions. STAC Capital Pty Ltd holds Australian Credit Licence 520267. STAC Capital Advisory Services Pty Ltd holds Australian Financial Services Licence 523025.
