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Development Finance

Development Funding Structures Explained

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Quick answer

Typical funding stack

60% 75%

Senior debt often forms the base of the capital stack

  • Main capital layers 3 to 5
  • Common mezzanine layer 10-20%
  • Repayment priority Top down
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A development funding structure is the way a project is pieced together using different layers of capital, rather than relying on a single loan source.

In Australia, this often means combining senior debt with developer equity, and sometimes mezzanine finance, preferred equity or joint venture capital depending on the size and risk of the project.

Instead of asking only how much a lender will provide, developers need to understand which source sits first, which source sits behind it, how each source is repaid, and how the full capital stack reaches project completion

Which projects use layered funding structures?

Funding structures matter most on projects where one source of money is not enough, or where the borrower wants to optimise leverage, preserve cash, or bring in specialist capital.

The structure chosen will usually depend on project size, approvals, presales, developer equity, experience, exit strategy and the risk appetite of each capital provider

Typical projects where layered structures appear include:

  • iconTownhouse developments with senior debt plus equity
  • iconApartment developments with presales and multi layer capital
  • iconLand subdivisions using debt and equity partners
  • iconHouse and land projects with staged drawdowns
  • iconMixed use developments with non bank or mezzanine support
  • iconCommercial developments with tailored exit structures

How Development Funding Structures Work

A funding structure explains not just the loan, but the order in which each capital source is secured and repaid.

Most structures begin with senior debt, then fill any remaining gap with equity, mezzanine finance, preferred equity or joint venture capital.

A simplified capital stack may look like:

  • 01 Land settlement
  • →
  • 02 Slab stage
  • →
  • 03 Frame stage
  • →
  • 04 Lock-up stage
  • →
  • 05 Fit-out stage
  • →
  • 06 Completion

Each layer has its own pricing, security position, control rights and repayment priority, which is why the right structure can materially affect both risk and profitability.

Common Funding Structures

Development projects are commonly structured using one of these approaches:

Structure 01

Senior debt plus developer equity

This is the most common structure, where a bank or non bank lender provides the senior facility and the developer funds the remaining gap with cash or equity.

Structure 02

Senior debt plus mezzanine or partner capital

Where the equity gap is too large, developers may add mezzanine debt, preferred equity, or a joint venture partner to complete the stack.

Typical senior debt base 60–75%
  • Senior lender usually sits first in security and repayment priority
  • The remaining gap is covered by equity, mezzanine or partner capital

Many Australian projects start with senior debt around 60 percent to 75 percent of total development cost, then use additional capital if the developer wants higher leverage or does not want to inject the full remaining equity requirement.

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What lenders assess in a funding structure

Before a structure is approved, each capital provider reviews the deal through its own risk lens.

This means the full stack must work commercially, legally and practically from acquisition through to exit.

The structure is commonly tested against:

  • iconLand acquisition and security position
  • iconConstruction budget and drawdown timing
  • iconProfessional reports and lender due diligence
  • iconMarketing, presales and exit timing
  • iconContingency buffers and cost overruns
  • iconTotal development cost and leverage
  • iconProjected end values and refinance ability
  • iconDeveloper profit and capital alignment
15 - 20 %
Even where multiple funding sources are available, the structure still needs to show enough margin and enough equity support to satisfy the senior lender and any subordinate capital provider.

Common capital layers

A development funding structure often combines different sources of capital with different rights and costs

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Senior debt

This is usually the cheapest layer and typically comes from a bank or non bank lender secured by a first ranking mortgage.

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Mezzanine or preferred equity

This layer sits behind senior debt, costs more, and is commonly used to bridge the gap between the senior facility and the developer’s own contribution.

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Developer equity or JV capital

This is the developer’s own money or an incoming capital partner. It is usually the most at risk but also the layer that captures the upside after debt is repaid.

Common structuring challenges

Many projects do not fail because there is no money available at all, but because the proposed structure is too thin, too expensive, or does not align with lender requirements.

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Capital stack gap

A common problem is where senior debt alone does not cover enough of total development cost and the borrower has not yet solved the remaining funding gap.

Possible solutions include:
  • icon Inject more developer equity
  • icon Add mezzanine or preferred equity
  • icon Restructure with joint venture capital
icon

Wrong capital source for the stage of the deal

Some funding structures fail because the project is being taken to the wrong capital source too early, such as trying to secure mainstream construction debt before the site is ready.

Possible solutions include:
  • icon Use land bank or DA funding
  • icon Move to senior construction debt later
  • icon Stage the structure in phases
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Too much expensive capital

A structure with too much mezzanine or too much partner capital can erode profit and make the deal unattractive even if the project can technically be funded.

Reducing leverage, increasing equity, or simplifying the capital stack may improve viability.
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Misaligned repayment priorities

Every funding layer expects to be repaid in a defined order, so poorly documented priority arrangements can create problems between capital providers.

Typical fixes include:
  • icon Using clear priority and intercreditor documents
  • icon Ensuring each layer has a defined exit
  • icon Matching each provider to the right project stage
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Steps To Build A Development Funding Structure

Step

01

Define the site, project type and intended exit

Step

02

Work out how much senior debt the project can realistically support

Step

03

Identify the remaining gap after senior debt and developer equity

p>
Step

04

Decide whether mezzanine, preferred equity or joint venture capital is needed

Step

05

Document repayment order, security position and key conditions for each layer

pment finance

Step

06

Settle the stack and then draw funds progressively as the project moves toward sale or refinance

completed

shape

Speak with a Development Finance Specialist

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Development funding structures can vary significantly depending on the project size, leverage target, approval status, presales, and how much equity the developer wants to contribute.

A specialist can review the capital stack and help determine whether the project is best suited to bank debt, non bank senior debt, mezzanine funding, preferred equity, or a joint venture structure.

Speak with a finance specialist about the right structure for your development project.

Submit the short form below and a development finance specialist will review your project and discuss possible funding structures and capital sources.

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Additional Questions

You may also find these questions helpful

Helpful Property Finance Guide

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Guide to senior debt and drawdowns

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Understanding capital stacks

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Mezzanine finance explained

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Joint venture funding explained

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