Your facility is the lower of two tests.
Every development finance guide explains LVR. Almost none mention that your senior facility is sized twice — once against end value, once against total cost — and you get the smaller number. Most developers are capped by cost and do not know it.
Development finance calculator
Two tests, and you get the smaller one
A senior development facility is sized against two ceilings. The first is loan to value — a share of gross realisation, typically 65%. The second is loan to cost — a share of total development cost, typically up to 80%. Your facility is the lower of the two, and which one binds tells you something the single number cannot.
If value binds, the project is not selling for enough relative to what it costs. If cost binds — which is more common than most first-time developers expect — the deal works, you simply cannot borrow your way to the whole of it. Those two situations call for completely different responses, and a calculator that reports one facility number cannot tell them apart.
Peak debt
Peak debt is not a percentage of anything
The number that decides whether your facility is big enough is peak debt: the most the project owes at its worst month. It is not derivable from totals. It depends on when money goes out and when it comes back — the construction S-curve, the settlement profile, and interest capitalising on the balance while both play out.
That circularity is why it has to be solved rather than estimated. Interest depends on the facility, the facility depends on total cost, and total cost includes interest. This model iterates to convergence instead of approximating, and reports the month the peak lands in — because a facility that clears peak debt in month nineteen and not month fourteen is not a facility.
Equity and mezzanine
The equity gap, and what closing it costs
Whatever the facility does not cover, you do. Equity required is total cost less what the senior actually advances — and note that a facility limit above peak debt is headroom, not money you receive. Subtract the cash you have and what is left is the shortfall.
Mezzanine closes that gap, and it is the most expensive money in the deal. Sized to the shortfall and no larger, because borrowing mezzanine you do not need is expensive money sitting idle. Priced properly it is charged over roughly half the program — it is drawn late and repaid on settlement — and then weighed against the profit it makes possible rather than quoted as a headline rate.
Worked example
A worked example
Four townhouses. Gross realisation $10,000,000, total development cost $7,000,000, peak debt $5,000,000, and $1,500,000 of equity on hand.
| Test | Basis | Facility |
|---|---|---|
| Loan to value — 65% of gross realisation | $10,000,000 | $6,500,000 |
| Loan to cost — 80% of total cost (binds) | $7,000,000 | $5,600,000 |
| Peak debt — what the project actually draws | — | $5,000,000 |
| Senior advanced | — | $5,000,000 |
| Equity required | — | $2,000,000 |
| Equity on hand | — | $1,500,000 |
| Shortfall | — | $500,000 |
Cost binds, not value. The facility tops out at $5,600,000 rather than the $6,500,000 the end value would have supported — so the constraint is not that the project sells too cheaply, it is that you cannot borrow the whole of what it costs to build.
Peak debt is below the limit, so the senior advances $5,000,000 and the remaining $600,000 of the facility is headroom you never draw. Equity required is $2,000,000 against $1,500,000 on hand: a $500,000 shortfall. Closing it with mezzanine at 14% over half a 22-month program costs about $94,000 all in — roughly 19% of the amount borrowed, for money that turns a project you cannot fund into one you can.
Calculator
Size it on your own project
It runs both tests, names the binding one, solves peak debt off the monthly cashflow and tells you the equity gap — with your state's stamp duty, land tax and contributions in the cost base.
Questions
Questions this raises
How much can I borrow for a property development?
The lower of two tests: around 65% of gross realisation, or up to 80% of total development cost. Most projects are capped by the cost test, which means the constraint is how much of the build you can finance rather than what it sells for.
What is the difference between LVR and LTC?
LVR measures the loan against the finished value of the project. LTC measures it against what the project costs to deliver. A lender applies both and lends against whichever produces the smaller facility.
What is peak debt and why does it matter?
The most the project owes at any single month. It cannot be worked out from totals — it depends on the construction draw profile, when sales settle, and interest capitalising while both happen. If your facility does not clear peak debt in the month it occurs, the project stops.
How much equity do I need for a development?
Total development cost less what the senior facility actually advances. A facility limit above peak debt is headroom rather than money you receive, so equity required is measured against what is drawn, not what is approved.
Is mezzanine finance worth it?
It depends entirely on the profit it unlocks. Mezzanine is the most expensive money in a deal — commonly 10–20% plus establishment and broker fees — but it is drawn late and repaid on settlement, so the real cost is roughly half a full term. Judge it against the margin it makes possible, not against the senior rate.
Do presales affect how much I can borrow?
Yes. Lenders discount presale contracts when testing cover — not every contract settles — and measure the qualifying value against the facility. Weak presale cover is one of the most common reasons a facility is offered smaller than the two headline tests suggest.
Beyond the facility
Test the whole project, not just the loan
The facility is only one line of a feasibility. Before a lender sizes it, they will want to see that the project itself works — land and acquisition costs, build, GST treatment, holding costs, finance and sales, all the way through to margin on cost.
The free development feasibility calculator tests the whole project the way a lender will: margin on cost, peak debt and IRR, with stamp duty, land tax and GST for every Australian state and territory.
Development finance
Sizing a facility?
Siare structures and places development finance across bank and non-bank lenders — senior, mezzanine and preferred equity. If the numbers stack up, we can tell you what the facility looks like and who would write it.
This page and the calculator are general information only, not financial, tax, legal or credit advice, and not an offer of finance. LVR and LTC caps, presale requirements and mezzanine pricing vary by lender and by deal. Build rates are estimates, not quotes. Verify every figure with your own quantity surveyor, accountant and broker before committing to a project.