A development capital structure is rarely one loan. Most projects of any scale are funded through a stack of layers, each with its own provider, its own risk position and its own price. This article explains the 4 main layers from the top of the leverage range down, how they interact and which lender categories provide each one in the Australian market as at June 2026.
All figures in this article are indicative category ranges, not offers or quotes. Every lender prices to its own credit assessment.
What a Capital Stack Is
The capital stack is the full set of money funding a project, ordered by who gets repaid first. Senior debt sits at the bottom with first claim over the security. Each layer above it accepts a later claim, takes more risk and prices accordingly.
The developer's own equity sits at the top. It is the last money repaid and the first money lost if the project underperforms, which is exactly why every layer below it exists to protect itself against that outcome.
Senior Debt: The Foundation
Senior debt is the primary construction facility, secured by a first registered mortgage over the site. It typically funds the largest share of total development cost and carries the lowest price in the stack because it is repaid first.
Two lender categories dominate this layer. Major banks lend senior construction debt at the lowest indicative rates in the market, roughly 6% to 8% per annum as at June 2026 (indicative), but with conservative settings: pre-sales cover approaching the full debt amount, lower leverage and 6 to 12 week approval timelines. Non-bank development specialists lend the same layer at indicatively 9% to 12% per annum, with lighter pre-sales requirements, higher leverage and 2 to 6 week timelines.
Senior leverage is usually expressed 2 ways: loan-to-cost (LTC, the loan against total development cost) and loan-to-value on gross realisation (the loan against the end value of the completed stock). A bank might cap senior debt around 70% to 80% of cost; a non-bank specialist will often go higher. Figures are indicative and vary widely by lender, asset and location.
Stretch Senior: One Facility, Higher Leverage
Stretch senior is a single facility that lends beyond the conventional senior ceiling, typically pushing loan-to-cost toward 85% to 90% (indicative). It blends what would otherwise be a senior loan plus a mezzanine layer into one line, with one lender, one set of documents and one pricing rate that sits between the two, indicatively 10% to 14% per annum as at June 2026.
The appeal is simplicity. There is no second lender, no intercreditor deed and no second approval process. The trade-off is that the whole facility prices above plain senior debt, including the portion that a cheaper senior lender would have funded. Stretch senior is almost entirely a non-bank specialist product; major banks do not generally offer it.
Mezzanine Debt: The Layer Behind Senior
Mezzanine debt fills the gap between the senior facility and the developer's equity. It is usually secured by a second mortgage or a security interest over the development entity and it is repaid only after the senior lender is repaid in full.
That subordinated position is why mezzanine prices where it does: indicatively in the high teens to low 20s per cent per annum as at June 2026. Mezzanine providers care intensely about the project's profit margin, because that margin is the buffer protecting their position. A thin-margin project rarely supports a mezzanine layer.
Mezzanine is provided by dedicated mezzanine and preferred equity providers, by some private credit funds and occasionally by the development arms of family offices. Banks do not provide it and most senior non-banks keep it separate from their senior book even where the wider group offers both.
Preferred Equity: Debt-Like Money Dressed as Equity
Preferred equity sits above mezzanine and just below the developer's ordinary equity. Structurally it is an investment in the development entity rather than a registered loan, with a fixed preferred return and priority over the developer's own equity at distribution.
Because it ranks behind every lender in the stack, it carries the highest price of the funded layers: indicatively from the low-to-mid 20s per cent per annum equivalent as at June 2026, sometimes structured as a coupon plus a share of profit. Providers are mezzanine and preferred equity specialists, private credit funds and family offices. One practical attraction is that some senior lenders treat preferred equity as equity rather than debt, which can keep the senior facility's gearing covenants intact where a second mortgage would breach them.
Risk and Indicative Pricing Order
From lowest risk and price to highest, the stack reads in a consistent order. Ranges below are indicative category figures as at June 2026, not offers.
| Layer | Typical Provider Categories | Indicative Pricing Order |
|---|---|---|
| Senior debt (bank) | Major banks | Lowest, roughly 6% to 8% p.a. |
| Senior debt (non-bank) | Non-bank development specialists | Roughly 9% to 12% p.a. |
| Stretch senior | Non-bank development specialists | Roughly 10% to 14% p.a. |
| Mezzanine | Mezzanine providers, private credit funds | High teens to low 20s % p.a. |
| Preferred equity | Mezzanine and preferred equity providers, private credit funds, family offices | Low-to-mid 20s % p.a. equivalent and above |
Private and caveat lenders sit outside this construction stack. They fund short-term, speed-driven positions such as site acquisition and bridging rather than full construction facilities, priced indicatively at 1% to 2% per month.
When a Stack Makes Sense Versus Plain Senior
Plain senior debt is the cheapest structure and the simplest. Where a developer holds enough equity to satisfy the senior lender's loan-to-cost limit, adding layers adds cost and complexity for no benefit.
A stack earns its place when equity is the constraint. A common composite: a project with a $11M total cost, a senior facility capped at $8M and a developer who can contribute $1M without stalling the next site. The $2M gap is fundable as mezzanine or preferred equity. The blended cost of the whole structure rises, but the developer's equity now stretches across 2 projects instead of one.
The arithmetic that decides it is return on equity, not headline rate. Expensive top-layer money on a small slice of the stack can lift equity returns even while it lifts the average cost of capital. It can equally destroy a thin-margin deal. Each project's numbers decide which way it falls and that modelling is a conversation for the developer's own advisers.
How the Layers Interact: Intercreditor Basics in Plain Words
Where 2 or more lenders fund one project, an intercreditor deed (sometimes called a priority deed) governs how they coexist. In plain terms it settles 4 things.
- Priority. The senior lender is repaid first, in full, before the mezzanine lender sees anything. The deed fixes a maximum senior amount so the junior lender knows the size of the debt ranking ahead of it.
- Standstill. If the project defaults, the junior lender typically agrees not to enforce its security for a defined period while the senior lender controls the response.
- Cures. The junior lender usually negotiates the right to step in and cure a senior default, for example by covering an interest shortfall, to protect its position rather than watch the senior lender enforce.
- Cash flow. The deed controls whether the junior layer can receive interest payments while senior debt is outstanding or must capitalise its interest until the senior facility is repaid.
Senior lenders price and approve deals on the assumption they control a distressed outcome. Some senior lenders, particularly major banks, simply will not consent to a second mortgage behind them, which is one reason stretch senior and preferred equity structures exist at all.
Which Lender Categories Provide Each Layer
The short map: major banks provide conservative senior debt only. Non-bank development specialists provide senior and stretch senior and are the workhorses of the current market. Mezzanine and preferred equity providers, alongside private credit funds and family offices, fund the junior layers. Private and caveat lenders fund speed-driven short-term positions outside the construction stack.
No category is "best". Each exists because it solves a different funding problem at a different price.
FAQ
What is the cheapest way to fund a development?
Plain senior debt from a major bank is the lowest-priced facility in the market, indicatively 6% to 8% per annum as at June 2026. The trade-off is the strictest credit settings: heavy pre-sales cover, conservative leverage and the longest approval timelines.
What is the difference between mezzanine debt and preferred equity?
Mezzanine is a loan, usually secured by a second mortgage, repaid after senior debt. Preferred equity is an investment in the development entity with a priority return, ranking behind all lenders but ahead of the developer's own equity. Preferred equity prices higher because it ranks lower.
Why would a developer pay 20%+ for part of their funding?
Because it applies to a small slice of the stack. Junior capital lets a developer run a project with less of their own equity, which can lift the return on the equity they do contribute and free capital for other sites. Whether the arithmetic works depends entirely on the project's margin.
Do all senior lenders allow mezzanine behind them?
No. Some senior lenders, particularly major banks, refuse second mortgages outright. Others permit them subject to an intercreditor deed. This is a screening question worth resolving before a stack is designed, not after.
See Which Lender Types Fit a Stack Like Yours
LenderBridge maps Australian development lenders at criteria level, including which categories fund each layer of the capital stack. The free matching tool at lenderbridge.com.au/lender-match takes a project's shape in about 2 minutes and shows which lender types could fund a project like this.
General information only, not credit assistance or financial product advice. LenderBridge connects borrowers and lenders; it does not advise or recommend. Verify figures with a lender.