What senior debt is
Senior debt is the primary construction facility, secured by a registered first mortgage over the development site. It ranks first for repayment, which is why it is the cheapest capital in the stack and the layer every other layer is arranged around.
When it's the right structure
Every funded development uses senior debt. The question is not whether to use it but how far it stretches — because the more the senior layer covers, the less expensive capital you need above it. Where senior debt alone leaves an equity gap, developers add mezzanine finance or preferred equity.
| Position in stack | Base layer — first to be repaid |
|---|---|
| Security | Registered first mortgage, general security agreement, guarantees |
| Typical leverage | Lower of a % of GRV (LVR) and a % of total cost (LTC) |
| Cost | Lowest in the stack |
| Presales | Often required for bank senior; reduced/none available at higher cost |
| Repaid by | Sales settlements or a completion refinance |
Because senior pricing and leverage hinge on how the deal is presented, we build the submission to defend the maximum sensible senior position — reducing the costlier capital you need above it.
Worked example
The same reference deal runs across all our capital-stack pages: a 24-apartment project with an $18.0m end value and a $12.5m cost base (land, build, consultants and contingency, before finance). Here is how it looks funded with senior debt only — the cheapest layer, sized to the lower of an LVR and LTC test.
| Layer | Amount | % of cost |
|---|---|---|
| Senior debt (first mortgage) @ 8.50% | $9.09m | 68% |
| Developer equity | $4.28m | 32% |
| Total development cost | $13.36m | 100% |
| End value (GRV) | $18.00m |
|---|---|
| Loan to value (LVR) | 50.5% |
| Loan to cost (LTC) | 68.0% |
| Cost of debt | 8.50% |
| Finance cost (interest) | $772,397 |
| Brokerage — BluCow (indic.) | $90,870 + GST |
| Development profit | $4.28m |
| Margin on cost | 32.0% |
| Return on equity | 100.0% |
| Equity multiple | 2.00x |
Illustrative only — a single $18.0m reference deal is used across our capital-stack pages so you can compare structures like-for-like. Actual figures depend on the lender, valuation, QS report and the deal.
Advantages and limitations
Advantages: lowest cost of funds, aligned to construction drawdowns, and the anchor of the whole structure. Limitations: conservative leverage means it rarely funds a project alone; presale and security conditions can be demanding.
Related services
Frequently asked questions
What leverage does senior debt provide?
Commonly the lower of a percentage of gross realisation (LVR) and a percentage of total cost (LTC). Bank senior is more conservative; non-bank senior can extend further at higher cost.
Is senior debt cheaper than mezzanine?
Yes — it holds first-mortgage security and is repaid first, so it carries the lowest cost of any layer. Mezzanine and preferred equity price higher for taking subordinated risk.