The scenario
“Presales buy you cheaper debt; completed stock buys you a better price.”
— The Australian Property Development Handbook
A developer controls a well-located infill site suitable for 12 townhouses. The feasibility is sound, but the developer wants to preserve cash to keep a second site moving. The question is how far senior debt stretches, and whether a mezzanine layer earns its cost.
How we structured it
| Gross realisation (GRV) | $13.0m |
|---|---|
| Total development cost | $10.0m |
| Development margin | $3.0m (~30% on cost) |
| Senior debt | $8.0m (lower of GRV / cost tests) |
| Mezzanine | $1.2m |
| Developer's equity | $0.8m |
| Brokerage — senior facility | From 1.0% + GST (min. $20k) — ≈ $80,000 + GST |
| Brokerage — mezzanine | From 1.0% + GST (min. $10k) — ≈ $12,000 + GST |
| Total brokerage (indicative) | ≈ $92,000 + GST |
| Senior rate | 8.50% |
|---|---|
| Mezzanine rate | 16.00% |
| Blended cost of debt | 9.48% |
| Loan to value (LVR) | 70.8% |
| Loan to cost (LTC) | 92.0% |
| Development margin | $3.0m |
| Margin on cost (RoC) | 30.0% |
| Return on equity (RoE) | 375% |
| Equity multiple | 4.75x |
How our fee works: BluCow charges per facility — from 1.0% + GST on the senior facility (minimum $20k + GST), and from 1.0% + GST on any mezzanine or preferred equity (minimum $10k + GST), tapering to 0.75% above $10m. Where a lender also pays BluCow a commission on a facility, it is credited against the fee shown.
This case study is hypothetical and illustrative — figures depend on the project, security, presales and lender.
The outcome
Adding the $1.2m mezzanine layer cuts the developer's cash in the deal from about $2.0m to $0.8m, lifting return on equity — at a higher cost on that subordinated slice. Because townhouses settle individually, the facilities are retired through a staged settlement ladder as each dwelling completes.