Introduction
Those differences matter because a finance term is rarely just a label. It can affect the amount of equity required, when loan funds become available, how sale proceeds are applied, which party controls a distressed project and how much the facility ultimately costs. A developer who understands the terminology is better equipped to compare term sheets, identify hidden conditions and communicate clearly with lenders and investors.
This glossary explains 120 of the most important terms used in Australian property development finance. It covers acquisition and construction lending, feasibility metrics, valuation concepts, security documents, equity structures, presales, leasing, subdivision funding and loan administration. The definitions are written in practical language, with an emphasis on how each term affects the developer rather than on technical wording alone.
How to use this glossary
The glossary is arranged alphabetically and is intended to function as a reference page. Readers can move directly to a term encountered in a valuation, quantity-surveyor report, facility agreement or funding proposal, then follow the related concepts through the rest of the article. Several terms are closely connected. For example, loan-to-cost, loan-to-value ratio, peak debt and cost to complete should normally be considered together rather than in isolation.
Definitions in this guide are general. The meaning of a term can change with the lender, transaction documents, project type and Australian jurisdiction. A facility agreement or intercreditor deed will always prevail over an informal industry definition, and legal, tax and financial advice should be obtained for a specific transaction.
“Know the metric before you negotiate the term.”
— The Australian Property Development Handbook
Why development-finance terminology matters
Many funding disputes begin with an assumption rather than an obvious error. A developer may think an approved facility limit is fully available, while the lender treats part of it as an interest reserve that cannot be used for construction. A sponsor may expect every settlement to reduce debt in proportion to the sale price, while the facility requires a higher release amount. An investor may refer to a preferred return as though it were guaranteed, even though it remains dependent on available project cash.
Clear terminology allows the capital stack to be modelled correctly before documents are signed. It also helps the development team prepare a consistent feasibility, programme and funding submission. When every adviser is working from the same definitions, risks are easier to identify and decisions can be made earlier.
A
Acquisition finance
Acquisition finance is funding used to purchase or settle a development site. It may be a short-term land loan, a bridging facility or the first stage of a larger development facility. The lender will usually assess the current site value, purchase price, planning position, borrower equity and intended repayment or transition into construction finance. Acquisition finance often carries lower leverage than a fully approved construction facility because the lender is exposed to planning, holding-cost and refinance risk before the project is ready to build.
AFSL
An Australian Financial Services Licence, commonly called an AFSL, is an authorisation issued by ASIC that permits the holder to provide specified financial services. Whether an AFSL is required in a development funding or equity-raising arrangement depends on the activities being undertaken, the type of investors involved and the structure of the offer. Developers raising external capital should obtain legal advice rather than assume that a private transaction is outside financial-services regulation. The licence status of an adviser or capital provider does not, by itself, determine whether a project is suitable.
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All-monies mortgage
An all-monies mortgage secures all amounts the borrower owes the lender, not only one identified advance. The secured obligations may include principal, interest, default interest, fees, enforcement costs, indemnities and other liabilities under connected documents. Developers should understand the breadth of the secured obligations because repaying the originally advanced principal may not automatically entitle them to a discharge. The wording is usually contained in the mortgage and facility documents and should be reviewed with the transaction lawyer.
Amortisation
Amortisation is the scheduled reduction of loan principal over time through periodic repayments. Most construction facilities do not amortise during the build because interest is capitalised or serviced and principal is repaid from settlements, asset sale or refinance. Amortisation becomes more relevant when completed stock is retained under an investment loan. A facility may be interest-only during development and then convert to an amortising loan once the asset is complete, leased and stabilised.
Approval in principle
An approval in principle is an early indication that a lender may support a transaction, subject to further information, valuation, due diligence, credit approval and documentation. It is not the same as an unconditional finance approval and should not be treated as guaranteed funding. The lender may still change the amount, pricing or conditions after reviewing the builder, feasibility, planning approval, presales or sponsor position. Developers should identify every outstanding condition before relying on an approval in principle for settlement or construction commitments.
“LVR and LTC are two different questions, not one.”
— The Australian Property Development Handbook
As-complete valuation
An as-complete valuation estimates the value of the project once the proposed works are finished, based on stated assumptions about approvals, construction, leasing, sales and market conditions. Residential sell-down projects are often assessed by gross realisation value, while income-producing commercial assets may be valued by capitalising stabilised net income. The as-complete value is a key input into loan-to-value calculations, but it is not cash in hand. The lender will usually apply its own risk margins and may also test a lower value under downside scenarios.
As-is valuation
An as-is valuation assesses the property in its present condition and planning status at the valuation date. It may reflect the existing improvements, current use, approved development potential and market evidence, but it does not assume that future construction has been completed. Lenders use the as-is value to assess acquisition leverage, initial security coverage and the amount of genuine land equity contributed by the sponsor. The purchase price and as-is value can differ, and lenders often adopt the lower or more conservative figure for credit purposes.
Assignment of proceeds
An assignment of proceeds gives the lender rights over money expected from identified contracts, insurance claims, leases or sales. In development finance, the lender may require sale proceeds, insurance proceeds or other project income to be paid into a controlled account and applied according to the facility agreement. The assignment helps protect the repayment pathway but can restrict the developer from redirecting cash to another project. The precise rights depend on the security documents and any notices given to counterparties.
B
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A bank guarantee is an undertaking by a bank to pay a stated amount to a beneficiary if the customer fails to meet an obligation. Developers commonly use bank guarantees for authority works, lease incentives, security deposits, infrastructure obligations and contractual performance. A guarantee usually consumes part of the developer's banking limit or requires cash security. The amount may therefore affect liquidity even though no cash has been paid. Development facilities should account for the timing of issue, expiry and release of each guarantee.
Base rate
The base rate is the benchmark interest rate to which a lender adds a margin to calculate the facility rate. Depending on the lender and product, the benchmark may be a bank bill rate, cash-rate-linked reference, internal cost-of-funds rate or another published or contractual index. A term sheet quoting only the margin is incomplete without the base-rate definition, reset frequency and any floor. Developers should model the all-in rate and test higher-rate scenarios, particularly where interest is capitalised and compounds through the project.
Borrower
The borrower is the legal entity that receives the loan and assumes the repayment obligations. Development sites are commonly held in a special-purpose company or trust so that project assets, liabilities and cash flows are separated from other activities. The lender will assess the borrower together with its directors, shareholders, trustees, guarantors and ultimate sponsors. A special-purpose borrower may have no independent financial strength, which is why the lender also relies on project security, sponsor equity and guarantees.
“Blended cost of capital is the number that tells the truth.”
— The Australian Property Development Handbook
Break costs
Break costs are amounts payable when a fixed-rate, hedged or otherwise committed funding arrangement is repaid or altered before the agreed date. They compensate the lender for costs or losses associated with unwinding its own funding position. Break costs may apply even where the underlying loan principal is repaid in full. Developers considering an early sale or refinance should check the calculation method, notice requirements and whether any minimum-interest provision applies in addition to break costs.
Bridging finance
Bridging finance is short-term funding used to cover a gap between an immediate obligation and a later repayment event. A developer may use it to settle a site before another asset is sold, refinance an expiring loan while a construction facility is being completed, or fund a time-sensitive acquisition. Bridging finance is usually assessed heavily on the exit because the term is short. Delays in sale, approval or refinance can therefore create significant extension and default risk.
Builder's margin
The builder's margin is the amount added by the builder for overhead, profit and risk in delivering the works. It may be shown separately or embedded within the contract price. A lender and quantity surveyor will consider whether the margin is commercially reasonable and whether the builder has sufficient financial capacity to complete the project. An unrealistically low margin can be a warning sign because it may encourage variations, cash-flow pressure or contractor failure later in the build.
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The building contract records the scope, price, programme, payment process, variation rules, security, delay provisions and responsibilities between the developer and builder. Lenders typically prefer a complete, arm's-length contract that aligns with the approved plans and feasibility. The contract type, provisional sums, exclusions and liquidated-damages regime can materially affect credit risk. The lender's lawyer and quantity surveyor may require amendments or clarifications before the first construction draw.
C
Capital stack
The capital stack is the order and composition of funding used in a project. It may include senior debt, stretch senior debt, mezzanine finance, preferred equity, ordinary equity and sponsor capital. Each layer has a different priority, cost, security position and control rights. Understanding the stack helps the developer compare the real cost of leverage and identify which party absorbs losses first. A cheaper layer is not always available at the required amount, and a higher-cost layer can reduce the sponsor's cash contribution while increasing project risk.
Capitalised interest
Capitalised interest is interest added to the loan balance rather than paid monthly in cash. It is commonly used during construction because the project may not yet generate income. The facility includes an interest allowance or reserve, and interest is charged against that amount as debt is drawn. Capitalising interest protects short-term cash flow but increases peak debt and total finance cost. Delays can exhaust the allowance, requiring additional equity or an extension before the project is complete.
Cash sweep
A cash sweep requires some or all available project cash to be applied to reduce debt. It may capture settlement proceeds, excess operating income, GST refunds, insurance recoveries or surplus funds after agreed costs. Cash sweeps improve lender repayment but can reduce the developer's ability to recycle capital into later stages or distribute profits. The facility should state which receipts are swept, the order of application and whether any money can be released back to the project after debt has been reduced.
Caveat
A caveat is a notice recorded on title claiming an interest in the land and warning others that the caveator may have rights over the property. A lender, vendor, joint-venture party or other claimant may lodge a caveat where a caveatable interest exists. Caveats can delay settlement or prevent registration of a new mortgage unless they are withdrawn, subordinated or otherwise addressed. Developers should obtain current title searches early and clarify the basis of every caveat before approaching a lender.
Certificate of title
The certificate of title, or title record in an electronic titling system, identifies the registered owner and interests affecting the land. It may show mortgages, easements, covenants, leases and other dealings. Development lenders rely on title searches to confirm ownership and determine whether first-ranking security can be registered. The title should be reviewed alongside the survey and approval because an easement or covenant may affect the developable area even though the borrower owns the land.
Civil works
Civil works are the infrastructure and site works required to create serviced land or support a development. They may include earthworks, roads, drainage, sewer, water, retaining structures, utilities and landscaping. Civil costs can be highly sensitive to ground conditions, authority requirements and weather. In subdivision finance, the lender will focus on the civil contract, programme, contingency, quantity-surveyor reporting and the point at which titles can be registered and lots settled.
Completion guarantee
A completion guarantee is an undertaking by the sponsor or guarantor to ensure the project reaches an agreed completion standard and that cost overruns or funding shortfalls are met. It may be separate from, or included within, broader guarantees and indemnities. The guarantee can expose the sponsor beyond the original equity contribution, particularly where the builder fails or the project runs over budget. The scope, cap, release conditions and interaction with other guarantees should be carefully reviewed.
Conditions precedent
Conditions precedent are requirements that must be satisfied or waived before the lender is obliged to advance funds. They commonly include executed finance documents, registered security, valuation, approvals, insurance, equity contribution, building contract, quantity-surveyor report and evidence of presales or leases. A signed facility agreement does not make funds available until the relevant conditions precedent are met. Developers should maintain a detailed closing checklist and allow time for legal and third-party documents.
Conditions subsequent
Conditions subsequent are obligations that can be completed after initial funding within a stated period. They may include delivery of an updated report, registration of a document, finalisation of a minor approval or satisfaction of another item that does not prevent settlement. Failure to complete a condition subsequent by the deadline can become a default or stop further drawdowns. Developers should not treat these conditions as optional simply because the lender allowed the first advance to occur.
Construction facility
A construction facility funds approved development costs progressively as work is completed. The lender usually advances against verified expenditure after receiving a drawdown request and quantity-surveyor report. The facility may include land refinance, construction costs, professional fees, contingency and capitalised interest. Availability is controlled by conditions, cost-to-complete testing and the maximum approved leverage. The total facility limit is not necessarily available immediately or for every project cost.
Construction programme
The construction programme is the timetable for the works, from site establishment through practical completion, certification, title registration and settlement. Lenders use it to assess the loan term, interest reserve, drawdown profile and exit timing. A programme should identify critical approvals, long-lead items, wet-weather allowances and dependencies between trades. An unrealistically short programme can understate interest and holding costs, while a delayed programme can trigger extension fees and presale expiry risk.
Contingency
Contingency is an allowance for unforeseen costs, design development, price changes and other risks not fully captured in the base budget. Lenders and quantity surveyors assess whether it is appropriate for the project stage, contract type and remaining work. A contingency is not automatic profit or spare cash; access may require evidence and lender approval. If the allowance is used early, the developer may need to contribute more equity to preserve sufficient funds for completion.
Cost overrun guarantee
A cost overrun guarantee requires the sponsor or guarantor to fund project costs above the approved budget or facility. It reinforces the lender's requirement that the project remain fully funded to completion. The guarantee may cover construction variations, interest overruns, authority charges and other shortfalls, depending on its wording. Developers should understand whether the obligation is capped, when it is triggered and whether additional funds must be contributed before the lender advances further money.
Cost to complete
Cost to complete is the amount required to finish the project from a particular date, including remaining construction, professional fees, authority costs, contingency, finance costs and other committed expenditure. At each drawdown, the lender tests whether undrawn debt plus remaining equity and other approved sources are sufficient to meet that amount. If the project is no longer fully funded, the lender may require an equity top-up before releasing further funds. This test is central to construction-loan administration.
Covenant
A covenant is a contractual promise by the borrower or guarantor. Financial covenants may set maximum leverage, minimum interest cover, presale coverage or liquidity requirements. Information covenants require regular reports, budgets and notices. Negative covenants restrict actions such as additional borrowing, asset sales, distributions or changes in control. Breaching a covenant can give the lender rights even where payments are current, so the testing method, cure period and consequences should be understood before signing.
Credit approval
Credit approval is the lender's internal decision to support a transaction on specified terms. It usually follows assessment of the borrower, sponsor, valuation, feasibility, builder, approvals, security and exit. A relationship manager or broker may be supportive, but only the authorised credit process can approve the loan. Credit approval may still be subject to valuation updates, legal documentation and conditions precedent. Material changes to the project can require the transaction to return to credit.
Cross-collateralisation
Cross-collateralisation occurs when one facility is secured by more than one property or when several facilities share the same security pool. It can increase borrowing capacity by using equity in another asset, but it also links the risks of separate projects. A default on one facility may affect all secured assets, and releasing a property can require lender consent or debt reduction. Developers should compare the benefit of additional leverage with the loss of flexibility and asset separation.
Those differences matter because a finance term is rarely just a label.
D
Debt service coverage ratio
The debt service coverage ratio, or DSCR, compares net operating income with required principal and interest payments. It is most relevant to completed assets being retained or refinanced rather than projects relying solely on sale proceeds. A DSCR above 1.0 means forecast income exceeds scheduled debt service, but lenders normally require a buffer. The calculation can vary according to how income, incentives, vacancy, capital expenditure and amortisation are treated, so the lender's definition matters.
Debt yield
Debt yield compares a property's net operating income with the loan amount. It shows the income return on the lender's exposure without relying on the borrower's interest rate or amortisation period. Debt yield is often used for income-producing commercial property and refinance assessment. A higher figure generally indicates stronger income support, but acceptable levels depend on asset quality, lease profile, location and market risk. The calculation should use sustainable net income rather than an optimistic first-year figure.
Default interest
Default interest is a higher rate charged when an event of default occurs or an amount is overdue. It is intended to compensate the lender for increased risk and administration, and it can materially increase the debt balance during a delayed project. Default interest may apply to the overdue amount or, under some documents, the full facility balance. Developers should understand the trigger, rate uplift, compounding method and whether the lender can charge other enforcement costs at the same time.
Development approval
Development approval is the planning consent that permits the proposed use, subdivision or built form, subject to conditions. Terminology differs between states and councils, but lenders focus on whether the approval is current, legally effective and consistent with the plans, feasibility and valuation. Conditions may require infrastructure contributions, easements, external works or further operational approvals. An approved project can still carry significant planning risk if conditions are unresolved or the approval is close to lapsing.
Development management agreement
A development management agreement appoints a developer or manager to coordinate the project on behalf of the landowner or project entity. It usually covers services, authority, fees, reporting, decision rights, termination and responsibility for consultants and builders. Lenders review the agreement where the sponsor is not the legal landowner or where fees are paid to a related entity. The lender may require the agreement to be subordinated, assigned or capable of being terminated if the project is enforced.
Development margin
Development margin describes the projected profit buffer in a project. The term is sometimes used for profit on cost and sometimes for profit as a percentage of revenue, so the calculation should always be stated. A healthy margin helps absorb lower sale prices, higher costs and delays. Lenders do not rely on the headline margin alone; they also test cash flow, leverage, cost to complete and downside repayment. Two projects with the same margin can have very different risk profiles.
Drawdown
A drawdown is an advance made under an approved facility. Development loans are generally drawn progressively rather than paid in full at settlement. The borrower submits a request supported by invoices, progress claims and other evidence, and the lender may obtain quantity-surveyor verification before releasing funds. Drawdowns remain subject to the facility limit, approved budget, cost-to-complete test and continuing compliance. Late or incomplete requests can disrupt builder payments and the construction programme.
E
Early repayment fee
An early repayment fee is charged when the facility is repaid before an agreed date or minimum period. It may be a fixed amount, a percentage of the loan, a minimum-interest adjustment or another formula. The fee protects the lender's expected return and may apply even where the project completes successfully ahead of schedule. Developers comparing facilities should model the expected repayment date and all early-exit charges rather than focusing only on the annual interest rate.
Equity
Equity is the capital that sits behind debt and absorbs project losses before the lender. It may be contributed as cash, verified land value, paid project costs or external investor capital. Equity also carries the residual upside after debt and preferred claims are repaid. Lenders assess both the amount and quality of equity. Genuine cash already invested is generally viewed differently from future profits, unpaid fees or capital that remains subject to conditions.
Equity contribution
The equity contribution is the amount the sponsor and approved investors must provide to the project. The lender may require equity to be invested before debt, progressively alongside debt or in another agreed sequence. Evidence can include bank statements, settlement records and paid invoices. The contribution should cover not only the initial gap between cost and debt but also any costs the lender excludes. Failure to contribute equity on time can stop drawdowns and create a construction shortfall.
Equity multiple
Equity multiple compares the total cash returned to equity investors with the equity they invested. An equity multiple of 1.50x means investors receive one and a half times their contributed capital, including return of capital. It does not show how long the investment took, so it should be considered with IRR and project duration. The measure can be calculated before or after fees and promotes, making the stated basis important.
Establishment fee
An establishment fee is charged for arranging and setting up the facility. It is commonly calculated as a percentage of the approved limit, although some lenders use a fixed amount or percentage of drawn debt. The fee may be paid at settlement, deducted from the first advance or capitalised. It forms part of total development cost and can affect leverage. Developers should also distinguish the lender fee from brokerage, legal, valuation and due-diligence costs.
Exit fee
An exit fee is payable when the facility is repaid or when specified project events occur. It may be a percentage of the approved limit, amount drawn, gross realisation value, sale proceeds or project profit. Because the calculation base can differ materially, an apparently small percentage may produce a significant cost. Exit fees should be modelled together with interest, establishment fees and minimum-return provisions when comparing funding options.
Exit strategy
The exit strategy explains how the lender will be repaid. Common exits include retail settlements, bulk sale, sale of a completed investment asset, refinance into a term facility or staged lot releases. The strategy should be supported by values, timing, presales, leasing evidence and realistic transaction periods. Lenders also consider a secondary exit in case the primary plan is delayed. A strong development profit does not replace a credible repayment pathway.
Extension fee
An extension fee is charged when the lender agrees to extend the facility beyond its original maturity. It may be payable upfront, added to the debt or combined with an increased interest margin. An extension is not automatic, even where the borrower is willing to pay the fee. The lender may require updated valuation, cost-to-complete confirmation, revised presales and additional equity. The original term should therefore include a realistic buffer for completion and exit.
F
Facility agreement
The facility agreement is the principal contract governing the loan. It sets out the limit, purpose, interest, fees, conditions, drawdown process, representations, covenants, events of default and repayment obligations. The term sheet is only a summary; the facility agreement contains the binding detail. Developers should ensure the legal documents reflect the commercial understanding and should pay particular attention to lender discretion, material-adverse-change clauses, cost overruns and enforcement rights.
Feasibility
A development feasibility is the financial model used to estimate project costs, revenue, timing, debt, equity and returns. A lender-ready feasibility should reconcile to the approved design, building contract, quantity-surveyor report, valuation and sales or leasing evidence. It should include monthly cash flow and sensitivity testing, not just a static profit summary. The lender may adjust assumptions and prepare its own credit version rather than accept the developer's base case.
First mortgage
A first mortgage is the highest-ranking registered mortgage over the land. Subject to law and the transaction documents, it gives the holder priority over later mortgages from the sale proceeds of the property. Senior development lenders generally require a first mortgage together with other security. A first-ranking position reduces loss risk but does not eliminate it, particularly where completion costs, selling expenses and falling values reduce the amount available on enforcement.
Fixed-price building contract
A fixed-price building contract states an agreed price for a defined scope, subject to permitted variations, provisional sums and other adjustments. Lenders prefer this structure because it improves cost certainty, but the label alone is not enough. Exclusions, incomplete design, latent conditions and broad variation rights can still create significant overruns. The quantity surveyor will assess whether the scope is complete and whether the price is adequate for the proposed works.
Floating interest rate
A floating interest rate changes over time by reference to a base rate plus the lender's margin. It exposes the project to higher or lower interest costs during the facility term. Because development interest is often capitalised, rate increases can compound into peak debt and reduce the available construction budget. Sensitivity testing should consider both the level of the rate and the possibility that delays keep the facility outstanding for longer.
Fund-through
A fund-through is a structure in which an investor or purchaser funds development costs progressively and acquires the completed asset under agreed terms. The arrangement can reduce traditional development debt but transfers substantial control, delivery and performance obligations to the documents between the parties. Pricing, progress-payment conditions, cost overruns, design changes and completion tests require careful negotiation. Fund-through arrangements are common in some commercial and institutional projects but are highly transaction-specific.
G
General security agreement
A general security agreement gives the secured party an interest over specified personal property of the borrower, often including bank accounts, receivables, contracts, insurance proceeds and other assets. It complements the real-property mortgage and is generally registered on the Personal Property Securities Register. The agreement may cover present and future property and can restrict the borrower from granting competing security. Its scope should be understood across all project entities.
Gross development value
Gross development value, often abbreviated GDV and sometimes called gross realisation value or GRV, is the estimated total value of the completed project before selling costs and debt repayment. For a sell-down project it is generally the sum of expected sale prices. For a completed investment asset, the lender may instead focus on the capital value derived from stabilised income. The valuation basis, GST treatment and timing should be stated because these can materially change the figure.
Gross floor area
Gross floor area is a planning or measurement concept describing the total floor area of a building according to the relevant definition. It is used in design controls, cost analysis and development comparisons, but it is not the same as saleable area or net lettable area. Different planning schemes and measurement standards can treat balconies, plant rooms, car parking and common areas differently. Feasibility and valuation documents should use consistent area definitions.
GST
Goods and Services Tax can affect land acquisition, construction payments, sales, settlements and project cash flow. The amount ultimately payable may differ from the timing of GST collections and input-tax credits, which can create a temporary funding requirement. Residential and commercial projects can have different GST outcomes, and the margin scheme may apply in some property transactions. Developers should obtain tax advice and model the timing rather than treating GST as a simple pass-through.
H
Hurdle rate
A hurdle rate is the minimum return level that must be achieved before a different profit share, promote or distribution tier applies. It may be expressed as an IRR, preferred return or equity multiple. In an equity waterfall, the sponsor may receive a larger share of profits after investors achieve the hurdle. The calculation period, compounding, treatment of interim distributions and whether the return is guaranteed or merely preferred should be clearly documented.
I
Independent valuation
An independent valuation is prepared by a suitably qualified valuer who is not relying solely on the developer's opinion or sales campaign. The lender usually instructs the valuer and relies on the report for current value, as-complete value, marketability and risk commentary. The developer commonly pays the fee but does not control the outcome. Valuation instructions should accurately describe the project, approvals, presales, leases and assumptions to avoid later disputes.
Interest cover ratio
The interest cover ratio compares earnings or net operating income with interest expense. It is commonly used when assessing completed income-producing property or a refinance exit. A ratio above 1.0 means income exceeds interest, but lenders normally require a buffer for vacancy, expenses and rate movements. The definition can vary depending on whether principal repayments, incentives, capital expenditure and non-recurring income are included. Construction projects without operating income are usually assessed by an interest reserve instead.
Interest reserve
An interest reserve is a portion of the facility or project budget set aside to pay interest during development. It is calculated using assumptions about drawdowns, rates and timing. The reserve is not a general construction contingency and may be controlled by the lender. If rates rise or the project is delayed, the reserve can be exhausted before repayment. The borrower may then need to service interest from cash, contribute more equity or obtain an extension.
Intercreditor deed
An intercreditor deed regulates the rights of two or more lenders in the same project, commonly a senior lender and mezzanine lender. It addresses priority, payment restrictions, information sharing, enforcement standstill periods, cure rights and control of security. The deed is critical because the lenders' individual facility agreements may otherwise conflict. Negotiation can be time-consuming, and senior lender consent is usually required before junior funding is advanced.
Internal rate of return
Internal rate of return, or IRR, is the discount rate at which the net present value of a series of cash flows equals zero. In practical terms, it measures return while considering the timing of contributions and distributions. A faster project can produce a higher IRR than a slower project with the same equity multiple. IRR is useful but can be sensitive to timing assumptions, interim distributions and model conventions, so it should be read with MOIC, equity multiple and absolute profit.
J
Joint venture
A joint venture is an arrangement in which parties combine land, capital, expertise or other resources to undertake a project. It may be structured through a company, unit trust, partnership, contractual agreement or other vehicle. The documents should address contributions, ownership, decision rights, distributions, cost overruns, guarantees, deadlock, default and exit. A 50/50 economic split does not automatically mean equal control, and lenders will examine the rights of each participant.
Junior debt
Junior debt is borrowing that ranks behind senior debt in repayment and security priority. Mezzanine finance is a common form. Because junior lenders are repaid after the senior lender, they take greater risk and generally charge a higher return. Their rights are often restricted by an intercreditor deed. Junior debt can reduce the sponsor equity requirement, but it increases fixed obligations and can make the capital stack less tolerant of delays or value reductions.
L
Land subdivision
Land subdivision is the process of creating separate legal lots from a larger parcel, usually through planning approval, civil works, compliance and title registration. Subdivision finance is heavily influenced by stage sequencing, civil costs, presales, title timing and release prices. The lender is repaid progressively as lots settle, so cash-flow modelling must show how each stage funds the next. A profitable total project can still experience liquidity pressure if settlements are delayed.
Lender's quantity surveyor
The lender's quantity surveyor, often called the lender's QS, independently reviews the construction budget, contract, programme, contingency and progress claims. The QS reports to the lender even though the borrower usually pays the fees. Before each draw, the QS may certify the value of completed work and test whether sufficient funds remain to finish the project. The lender can rely on the QS report when deciding how much to advance, but the report does not replace the developer's own cost control.
Loan term
The loan term is the period from settlement or first draw until maturity. It should cover construction, certification, title registration, sales settlements and a reasonable contingency period. A project may complete physically before the debt can be repaid, particularly where leasing, defects, refinancing or settlements take time. Shorter terms can reduce expected interest but increase extension risk. The term sheet should state extension options, fees and the lender's discretion.
This glossary explains 120 of the most important terms used in Australian property development finance.
Loan-to-cost
Loan-to-cost, or LTC, compares the lender's exposure with the project's approved total development cost. The exact numerator may be the facility limit or peak debt, and the denominator may exclude certain costs, so the lender's formula should be confirmed. LTC indicates how much of the cost is funded by debt and how much by equity. A lower LTC generally provides a larger cost buffer, but it does not show whether the completed value is adequate.
Loan-to-value ratio
Loan-to-value ratio, or LVR, compares the loan with the value of the secured property. Development lenders may calculate LVR against the as-is value, as-complete value or gross realisation value depending on the stage and product. LVR is different from LTC because value and cost are not the same. A project can satisfy one test and fail the other, which is why lenders commonly apply both limits.
M
Mezzanine finance
Mezzanine finance is a higher-risk layer of debt that sits behind senior debt and ahead of equity. It is used to increase total leverage or fill an equity gap. Pricing is higher than senior debt and may include interest, establishment fees, exit fees or profit participation. The mezzanine lender's security and enforcement rights are governed by an intercreditor deed. Mezzanine can preserve sponsor capital, but its fixed repayment obligation reduces the project's downside buffer.
Minimum interest or MOIC floor
A minimum-interest requirement or lender MOIC floor sets the minimum dollar return payable to the lender, even if the facility is repaid earlier than expected. For example, a lender may require a stated number of months' interest or a minimum multiple of invested capital. This can make a short successful project cost more than the headline annual rate suggests. Developers should calculate the effective cost at the expected repayment date and under earlier and later scenarios.
MOIC
MOIC means multiple on invested capital. It is calculated by dividing total value or cash returned by the amount invested. A MOIC of 1.40x means the investor receives 1.4 times the invested capital, including the return of that capital. MOIC does not account for time, so the same multiple can represent very different annualised outcomes over one year and four years. It is commonly used alongside IRR in private credit and equity transactions.
Mortgage
A mortgage is security granted over real property to support repayment of a debt. It gives the mortgagee rights that may include taking possession and selling the property after default, subject to law and the documents. Development lenders generally require a registered first mortgage over the site. The mortgage works with the facility agreement, guarantees and other securities rather than operating as the complete loan contract by itself.
N
Net lettable area
Net lettable area, or NLA, is the area of a commercial property that can generally be leased to occupants under the applicable measurement standard. It excludes many common, service and plant areas that form part of gross floor area. Rental income and investment value are often assessed on NLA, making accurate measurement important. A feasibility based on gross floor area can overstate rent if it assumes every square metre is lettable.
Non-bank lender
A non-bank lender provides credit without operating as a traditional deposit-taking bank. The category includes private credit funds, mortgage funds, investment managers and specialist finance companies. Non-bank lenders may offer greater flexibility on leverage, presales, asset type or sponsor experience, but pricing and control rights can be higher. The label does not indicate one standard risk appetite; each lender has its own funding sources, mandate and approval process.
O
Operational works approval
Operational works approval authorises specified engineering, earthworks, drainage, access, services or other works associated with a development, depending on the jurisdiction. A planning approval may not be enough to commence civil construction until these detailed approvals are obtained. Lenders assess whether the works are approved, priced and consistent with the programme. Delays or additional authority conditions can increase cost and postpone title registration or building commencement.
Option agreement
An option agreement gives a party the right, but not always the obligation, to purchase land on agreed terms within a stated period. Developers use options to control a site while completing due diligence, planning or funding. Lenders will review the option fee, exercise conditions, expiry, nomination rights and whether the borrower can obtain enforceable title. Finance timing must allow for exercise and settlement, and the option should not expire before required approvals are obtained.
P
Pari passu
Pari passu means ranking equally. Where two debts or security interests rank pari passu, they share the relevant proceeds at the same priority according to the agreed arrangement. The term is common in syndicated facilities and shared-security structures. It should not be assumed merely because lenders participate in the same project; priority must be established by the finance and security documents. Different tranches can share security while having different payment rights.
Peak debt
Peak debt is the highest projected loan balance during the facility term. It reflects progressive drawdowns, capitalised interest, fees, repayments and settlement timing. Peak debt is often more useful than the total facility limit when assessing actual leverage, although lenders may calculate covenants using either figure. A delayed project or slower settlements can increase peak debt beyond the base case, so the feasibility should include a realistic buffer.
PPSA and PPSR
The Personal Property Securities Act governs many security interests over personal property in Australia, while the Personal Property Securities Register records registrations of those interests. Development lenders commonly register security over company assets, receivables, bank accounts, contracts and other personal property. Priority can depend on correct and timely registration. The PPSR should also be searched for existing security interests affecting the borrower, builder or key project assets where relevant.
Practical completion
Practical completion is the contractual stage at which the works are substantially complete and capable of their intended use, apart from minor defects or omissions. It is usually certified under the building contract and may trigger release of retention, commencement of defects periods, settlement obligations and leasing milestones. Practical completion is not always the same as statutory completion, occupancy approval or title registration. The finance programme should allow for all steps required before repayment.
Preferred equity
Preferred equity is equity capital that receives priority over ordinary equity for distributions or return of capital. It may carry a preferred return, hurdle, redemption right or enhanced control protections. Unlike debt, payment is generally dependent on available project cash and the legal structure, but preferred equity can still be economically expensive. It is often used where senior and mezzanine debt cannot provide the required leverage or where parties want more flexible repayment obligations.
Prelease
A prelease is an agreement for a tenant to occupy the completed premises, often subject to construction, approvals and other conditions. Preleases can support valuation, construction funding and the refinance exit by demonstrating future income. Lenders assess tenant covenant, lease term, rent, incentives, fit-out obligations, conditions and termination rights. A non-binding heads of agreement is not equivalent to an executed lease, and the value contribution depends on the quality of the tenant and document.
Presale
A presale is a contract to sell a lot or dwelling before construction is complete. Lenders may require qualifying presales to demonstrate demand and support debt repayment. They examine price, deposit, purchaser identity, finance conditions, sunset dates, related-party involvement and the contract's enforceability. Not every signed contract is treated as qualifying. Presale requirements vary by project type, lender and leverage, and some private lenders may accept lower coverage with other risk mitigants.
Presale coverage
Presale coverage measures the amount of contracted sales relative to a lender requirement, debt exposure or project stock. It may be expressed as a number of units, percentage of gross realisation value or value of qualifying contracts. The definition must state whether deposits, GST, commissions and release amounts are considered. High nominal presales can provide weak coverage if the contracts are conditional, concentrated among related purchasers or priced above supported market value.
Priority deed
A priority deed sets the ranking and rights of parties holding security over the same borrower or assets. It may be used between a senior lender, mezzanine lender, vendor financier or other secured party. The deed specifies which debt is paid first, how enforcement is controlled and whether a junior party can cure defaults. It is similar in purpose to an intercreditor deed, although terminology and scope vary. Completion can be a condition precedent to funding.
Private credit
Private credit is lending provided by investment funds, institutions or other non-bank capital rather than through publicly traded debt markets or conventional bank balance sheets. In property development it can include senior, stretch senior, bridging and mezzanine loans. Private credit may offer speed and structural flexibility, but the cost, minimum return, controls and exit requirements can be more demanding. Developers should compare total economics and execution certainty, not simply bank versus non-bank labels.
Profit on cost
Profit on cost is calculated by dividing projected development profit by total development cost. It shows the profit buffer relative to the capital required to deliver the project. The result depends on how profit and cost are defined, particularly GST, finance, land value and developer fees. Lenders use profit on cost as one indicator of resilience but also test leverage, value, cash flow and sensitivity. A strong percentage does not cure an unfunded cost-to-complete position.
Profit on revenue
Profit on revenue, sometimes called profit on gross realisation, divides projected development profit by total revenue or gross development value. It will normally be lower than profit on cost for the same project because the denominator is larger. Confusing the two can materially misstate the margin. Funding submissions should name the calculation and show the formula so that the lender and developer are discussing the same measure.
Progressive drawdown
Progressive drawdown is the staged release of loan funds as approved project costs are incurred and work is completed. It reduces the lender's exposure compared with advancing the entire facility upfront and means interest is generally charged only on amounts drawn. Each draw remains subject to documentation, quantity-surveyor certification and cost-to-complete testing. Developers need to plan submission and approval lead times so builder claims can be paid when due.
Project SPV
A project special-purpose vehicle, or SPV, is an entity created primarily to own and undertake one development. It helps separate project assets, liabilities and investors from other businesses. The lender commonly takes security over the SPV's land, assets, bank accounts and shares or units. An SPV does not remove sponsor risk, and the lender may still require guarantees, completion support and disclosure of related-party agreements.
Provisional sum
A provisional sum is an allowance in a building contract for work that cannot be accurately priced when the contract is signed. The final amount is adjusted once the scope and cost are known. Large or numerous provisional sums reduce cost certainty and can create overruns. The lender and quantity surveyor may require additional contingency, design completion or evidence that the allowance is adequate before accepting the contract as fixed price.
Q
Quantity surveyor
A quantity surveyor is a construction-cost professional who estimates, monitors and reports on project expenditure. The developer's QS may prepare cost plans and manage budgets, while the lender's QS independently reviews the project for the financier. Their reports can cover contract adequacy, contingency, progress, variations and cost to complete. A QS does not guarantee the builder's performance or eliminate all cost risk, but provides an important independent control.
R
Refinance
Refinance is the repayment of an existing loan with a new facility. A development loan may be refinanced into a longer-term investment loan once the asset is complete, leased and stabilised. The exit depends on the completed value, sustainable income, DSCR, debt yield, borrower strength and prevailing credit policy. Refinance should not be assumed solely because construction is finished. A lower valuation or slower lease-up can leave an equity gap.
Release price
A release price is the amount the lender requires from the settlement of an individual lot, dwelling or stage before releasing its mortgage over that property. It may be calculated as a percentage of the sale price, a fixed amount, or under a debt-reduction formula. Release prices determine how quickly debt is repaid and how much cash can be recycled into later stages. They should be modelled at the term-sheet stage, especially for subdivisions and staged developments.
Clear terminology allows the capital stack to be modelled correctly before documents are signed.
Residual land value
Residual land value is the amount a developer can theoretically pay for land after deducting all development costs, finance, selling costs and required profit from the completed project value. It is sensitive to revenue, construction cost, time and target margin. Valuers and developers use residual analysis to assess site value, but lenders may apply more conservative assumptions. Paying above the supportable residual can permanently compress the project's profit buffer.
Retention
Retention is money withheld from builder payments as security for completion and defect rectification. It is typically accumulated to a contractual cap, with part released at practical completion and the balance after the defects-liability period. The lender's drawdown process should recognise the retention mechanism so debt is not advanced for amounts not yet payable. Bank guarantees may sometimes replace cash retention, subject to the contract.
S
Second mortgage
A second mortgage is registered behind a first mortgage and has lower priority to sale proceeds. It may secure mezzanine, vendor or other subordinate finance. The first mortgagee's consent is usually required, and a priority or intercreditor deed governs enforcement and payment rights. Because the second mortgagee is exposed to the senior debt being repaid first, pricing is higher and the available loan amount depends heavily on the project's remaining equity buffer.
Senior debt
Senior debt is the highest-ranking debt in the capital stack and is generally secured by a first mortgage and other project assets. It is repaid before mezzanine debt and equity and therefore usually carries the lowest pricing among project-capital layers. Senior lenders impose leverage limits, covenants, drawdown controls and cost-to-complete requirements. Lower cost does not necessarily mean maximum flexibility, and traditional senior debt may require substantial sponsor equity or presales.
Sensitivity analysis
Sensitivity analysis tests how the feasibility changes when key assumptions move. Common scenarios include lower values, higher construction costs, higher interest rates, slower sales and delays. A combined downside is often more informative than testing each item separately because risks can occur together. Lenders use sensitivities to assess whether debt remains repayable and whether the sponsor has enough equity and liquidity. The objective is not to predict one exact outcome but to understand resilience.
Serviceability
Serviceability is the borrower's capacity to meet interest and principal obligations from income or available cash flow. During construction, serviceability may rely on a capitalised-interest reserve rather than operating income. For retained commercial assets, lenders assess rent, expenses, vacancy and debt service. Sponsor income can provide additional support but is not always accepted as the primary repayment source. The assessment method depends on the facility and project stage.
Settlement risk
Settlement risk is the possibility that contracted sales do not settle when expected. Causes include purchaser finance failure, valuation shortfalls, construction delays, sunset dates, defects and market changes. Settlement risk affects debt repayment, interest, release pricing and the ability to fund later stages. Lenders assess purchaser quality, deposit levels, contract terms and concentration. The feasibility should allow time and cost for resales rather than assuming every contract settles on the first scheduled date.
Sponsor
The sponsor is the person or group ultimately responsible for initiating, controlling and supporting the development. The sponsor may contribute equity, provide guarantees, appoint the development team and make major decisions even where a separate SPV is the borrower. Lenders assess experience, net worth, liquidity, conduct and capacity across all projects. A strong sponsor cannot make an unviable project financeable, but weak sponsorship can prevent an otherwise sound project from being approved.
Stabilised value
Stabilised value is the estimated value of a completed income-producing asset once it has reached a sustainable level of occupancy and income. It may differ from value at practical completion where leasing, incentives, defects or operating history remain unresolved. Refinance lenders focus on stabilised net income and market capitalisation rates. Developers retaining commercial property should model the cost and time required to move from construction completion to stabilisation.
Step-in rights
Step-in rights allow a lender or secured party to take control of key contracts or project functions after default or another trigger. They may apply to building contracts, development management agreements, leases and material consultant appointments. The objective is to preserve project value and enable completion or sale. Counterparties may be required to acknowledge these rights through tripartite deeds. Developers should understand that enforcement can involve control of the project, not only sale of the land.
Stretch senior
Stretch senior is a single senior-style facility that provides higher leverage than conventional senior debt, often replacing part of the mezzanine or equity requirement. It can simplify the capital stack by using one lender and one set of loan documents. Pricing is higher than traditional senior debt because the lender takes greater risk. Availability depends on sponsor experience, margin, presales, location and exit. Minimum-return provisions can materially affect the effective cost on short projects.
Subordination
Subordination is an agreement that one claim will rank behind another for payment, security or enforcement. Mezzanine debt, shareholder loans, development-management fees and related-party amounts are often subordinated to senior debt. The junior party may be prevented from receiving payments or enforcing while the senior facility is outstanding. Subordination protects the senior lender but can delay or eliminate repayment to the junior party if the project underperforms.
Sunset date
A sunset date is the deadline by which a presale contract or other agreement must reach a stated milestone, commonly registration of title or completion. If the milestone is not met, termination rights may arise subject to the contract and applicable law. Development delays can therefore threaten presale coverage and debt repayment. Lenders review sunset dates against the programme and may require extensions, legal confirmation or additional time buffers.
T
Term sheet
A term sheet summarises the principal commercial terms on which a lender is prepared to consider or provide finance. It typically covers amount, leverage, pricing, term, security, covenants, conditions and fees. Some provisions may be non-binding while confidentiality, costs or exclusivity clauses can be binding. The term sheet is not a substitute for the facility agreement. Developers should model every fee and condition before accepting it and should identify where lender discretion remains.
Total development cost
Total development cost, or TDC, is the complete cost of delivering the project. It generally includes land, acquisition costs, construction, consultants, approvals, authority charges, marketing, selling costs, finance, contingency and GST timing where relevant. Definitions vary, and some lenders exclude land uplift, related-party fees or certain taxes from their LTC denominator. A funding submission should state exactly what is included and reconcile the figure to the monthly cash flow.
Tranche
A tranche is a distinct portion of a financing arrangement with its own amount, purpose, priority, pricing or drawdown conditions. A facility may contain acquisition, construction, GST and interest tranches, or separate senior and subordinated tranches. Tranches help match funding to different risks and stages but can create complexity where each has separate limits or repayment rules. The borrower should understand which costs can be paid from each tranche.
U
Undrawn commitment fee
An undrawn commitment fee is charged on the approved but unused portion of a facility. It compensates the lender for reserving capital that the borrower may draw later. The fee can be significant on a large construction limit that is drawn slowly. Developers should check when the fee begins, which facility components are included and whether unused interest or contingency allowances attract it. It should be modelled separately from interest on drawn debt.
V
Valuation
A valuation is an independent opinion of property value prepared for a stated purpose and date. In development finance it may address the current site value, as-complete value, gross realisation value, marketability, presales and risk. The lender chooses the valuer and decides how the result is used in credit. A valuation is not a guarantee of sale price and can change with design, approvals, costs, leases and market conditions.
Variation
A variation is an approved change to the building contract scope, price or programme. Variations can arise from design changes, latent conditions, authority requirements or developer instructions. Even valid variations can create funding shortfalls if they exceed contingency or are not eligible for debt funding. Lenders and quantity surveyors usually require prompt reporting and may insist that the sponsor funds unapproved or discretionary changes before further advances.
Vendor finance
Vendor finance occurs when the seller provides part of the purchase funding, commonly through deferred settlement, an instalment arrangement or a secured loan. It can reduce the immediate cash requirement but creates another claim in the capital stack. The senior lender will assess priority, payment terms, default rights and whether the vendor security is subordinated. Vendor finance may also affect the lender's view of genuine purchaser equity and site value.
W
Waterfall
A waterfall is the order in which project cash is distributed among lenders, investors and the sponsor. It may first repay senior debt, then mezzanine debt, return investor capital, pay a preferred return and finally split residual profit under agreed tiers. Small drafting differences can materially change outcomes, especially around compounding, catch-ups and timing. A waterfall should be modelled with realistic cash flows before the parties sign the equity or joint-venture documents.
Working capital
Working capital is cash available for day-to-day project and business obligations that may fall outside the approved development budget. It can include staff costs, deposits, minor consultants, overheads and timing gaps. A lender may not fund general corporate expenses from the construction facility. Sponsors therefore need sufficient liquidity outside the loan to manage the project and support unexpected requirements. Strong net worth without accessible working capital may provide limited protection during a delay.
Y
Yield
Yield is the annual income return on a property relative to its value or price. In commercial valuation, a capitalisation rate is applied to sustainable net income to estimate value. A lower yield generally produces a higher value, all else equal, and a higher yield produces a lower value. Small yield movements can materially affect the as-complete value and refinance capacity of an income-producing development. The appropriate yield depends on location, asset quality, tenant covenant, lease term and market conditions.
Yield on cost
Yield on cost compares the completed property's stabilised net operating income with total development cost. It helps developers assess whether creating the asset produces an income return above the market yield at which it may be valued. The difference can indicate development value creation, but it does not capture timing, financing or leasing risk by itself. Yield on cost should be based on sustainable income after incentives, vacancy and operating expenses rather than headline rent.
How the terms work together
Development finance terms should rarely be assessed one at a time. LTC and LVR define different leverage constraints, while peak debt and cost to complete determine whether the facility remains sufficient during construction. Presale coverage and release prices affect the speed of repayment. Interest reserves, minimum-interest provisions and extension fees determine the real finance cost. The interaction between these items is what ultimately makes a structure workable or dangerous.
The same principle applies to equity. MOIC, IRR and equity multiple measure different aspects of return, while the waterfall determines who receives that return and when. Preferred equity can reduce fixed debt obligations but may transfer more control and upside to investors. Mezzanine debt may preserve ownership but introduces a fixed repayment claim ahead of the sponsor. The correct structure depends on the project rather than on a single preferred product.
Related BluCow Capital guides
Several of these terms are covered in depth across our other guides — see the related articles below, or explore our finance structures and feasibility calculators.
Speak with BluCow Capital
Property development funding is easier to compare when the terminology, assumptions and total cost are clear. BluCow Capital works with developers to assess the project, prepare the funding position and identify structures across senior debt, stretch senior, mezzanine finance, private credit and equity.
A well-structured funding request should explain not only how much debt is required, but why that amount is appropriate, how the project remains fully funded and how the lender will be repaid. Early advice can help identify issues before they appear in valuation, credit or legal due diligence.
Disclaimer
This article provides general information only and does not constitute financial, legal, tax, investment or credit advice. Development finance terms vary between lenders, transaction documents and Australian jurisdictions. Obtain advice appropriate to your project before making a funding, investment or legal decision.