Development finance for residential and commercial projects.

Development finance funds the construction of a project, from a duplex or small townhouse site through to apartment and commercial builds. The lender approves a total facility based on the land value and the cost to build, and funds are drawn down progressively as construction reaches each stage, verified by a quantity surveyor. Interest is usually capitalised into the loan rather than paid monthly, and the loan is repaid at the end when the completed properties are sold or refinanced. Terms run from 6 to 36 months.

Banks usually require presales covering 100 per cent or more of the debt before construction starts, which suits larger projects with a marketing campaign. Non-bank and private lenders often require few or no presales, particularly for smaller projects, in exchange for a higher rate and a lower loan-to-cost ratio. For a duplex or townhouse project that will be sold on completion, a no-presale facility is common. Your broker matches the presale requirement to your project and timeline.

The cost has several parts: an establishment fee on the facility, a line fee charged on the whole limit whether drawn or not, interest on the drawn balance, usually capitalised, and the quantity surveyor, valuation and legal costs. Bank facilities are cheaper but slower and stricter; non-bank and private facilities cost more but move faster and need fewer presales. Because most of the interest is capitalised, the total cost depends heavily on how long the project takes, so the feasibility should include a time buffer.

A development application approval or a clear path to it, a feasibility showing costs, end values and profit margin, a fixed-price building contract with a licensed builder, a valuation of the land and the completed project, a quantity surveyor’s initial report, evidence of the developer’s equity and experience, and the exit strategy for repaying the loan, whether sales or a refinance. Lenders usually look for a profit margin of at least 15 to 20 per cent on cost.

Four to eight weeks for most facilities, driven by the valuation, the quantity surveyor’s report and the lender’s review of the builder and the feasibility. Private lenders can be faster for smaller projects. Start the finance conversation as soon as the DA is lodged and the builder is engaged, so the facility is approved by the time construction is ready to begin.

Senior lenders typically fund 65 to 75 per cent of total development cost, or 60 to 70 per cent of the end value of the completed project, whichever is lower, with the developer contributing the balance as equity, usually including the land. Stretch senior and mezzanine funding can lift the total to 80 to 90 per cent of cost at a higher rate. Private lenders will go further again for experienced developers. Lyft Financial models the capital stack and shows the blended cost of each option.

The builder submits a progress claim at each stage, an independent quantity surveyor inspects and certifies the work and the cost to complete, and the lender releases that stage’s funds to the builder, usually within a few days. The first drawdown often covers land or deposits, and a contingency is held in the facility for variations. Keeping the builder’s claims and the QS reports aligned is the key to smooth drawdowns, and your broker manages the process with the lender.

Senior debt is the first mortgage lender, funding the largest share at the lowest rate. Stretch senior is a single lender funding beyond the normal senior limit at a slightly higher blended rate. Mezzanine sits behind the senior lender as a second mortgage or a preferred equity position, funding the top slice at a much higher rate. Using stretch senior or mezzanine reduces the equity the developer needs to contribute. Your broker shows what each layer costs and how it affects the project’s return.

Yes. Development finance funds land and construction of a new centre against the approved plans and the projected income, converting to a commercial property loan when the centre opens. Lenders look at demand in the catchment, the operator’s experience and pre-enrolments. It is a specialist area and a broker with childcare experience matters.

Yes. Specialist disability accommodation and supported independent living properties are financed with commercial property and construction loans against the enrolled dwelling’s NDIS income, with lenders looking at SDA enrolment, participant demand and the provider’s experience. It is a specialist area and a broker with NDIS experience matters.