Capital Stack Structures in Brisbane Development

The Four Tiers

A typical Brisbane $60m development capital stack:

Tier 1 — Senior Debt (50-65% of cost: $30m-$39m)
- Source: Major bank (CBA, NAB, ANZ, Westpac) or non-bank (MaxCap, Wingate, Qualitas, Pepper)
- Rate: 8-10% bank, 9-12% non-bank
- Security: First mortgage over land + improvements
- LVR: typically 50-65% of total project cost; 70-80% in pre-sale-strong projects

Tier 2 — Mezzanine Debt (5-15% of cost: $3m-$9m, sometimes none)
- Source: Specialist lenders (RWC Capital, La Trobe, Aquasia, several family offices)
- Rate: 12-18%
- Security: Second mortgage / subordinated to senior
- Sits between senior debt and equity in the cap table

Tier 3 — Preferred Equity (5-15% of cost: $3m-$9m, sometimes none)
- Source: Family offices, capital partners, structured funds
- Return: 10-15% preferred return (paid before common equity)
- Behaves like equity for risk; like debt for predictability

Tier 4 — Common Equity (15-30% of cost: $9m-$18m)
- Source: Developer + LP / capital partner
- Return: residual after all senior tiers paid
- Highest risk, highest reward

How the Stack Affects Land Pricing

A developer's ability to pay for land is directly determined by the capital stack:

1. Senior debt funds 50-65% of total cost (including land). Bank LVR caps the upper limit.
2. Mezzanine can lift effective LVR to 70-80%, but at higher rate.
3. Equity funds the rest.

A developer with a strong capital stack (committed senior + cheap mezz + LP equity) can pay 5-15% more for land than a developer with a thin stack.

This is why named capital partners matter to vendors: they signal stack depth.

Risks of a Weak Capital Stack

Speculative developers often try to acquire sites without finalised capital stacks. Common patterns:

• Term sheet only, not credit-approved — bank conditional, may not fund
• Mezz "in discussions" — not committed
• Equity raised on a per-deal basis — uncertain timing
• No preferred equity — common equity must absorb all risk, often insufficient

Vendors signing with weak-stack developers face:
- Settlement risk (40-60% completion)
- Drawn-out timelines (180-360 days while developer raises capital)
- Renegotiation risk (developer pivots to lower price if equity falls short)

Strong Stack Indicators

A vendor should look for:
- Named senior lender with credit approval letter
- Named mezzanine lender (if used)
- Named LP / capital partner with funding commitment letter
- Internal equity sufficient to absorb 5-10% cost variance
- Track record of similar-sized deals completed

ACRES requires this evidence on all $20m+ contracts before recommending vendor signature.

How Lenders Underwrite Brisbane Developments

Senior lenders look for:
- 100-110% pre-sale ratio (residential developments)
- Pre-leased commercial / BTR
- DA-approved or near-final
- Builder appointed via D&C contract
- Equity injected before debt drawn
- Personal/corporate guarantees from sponsors

Sites without strong fundamentals (DA, pre-sales, builder) trigger thinner senior debt and require more equity — which constrains the price the developer can pay.

Vendor Strategy

For vendors negotiating with developers:

1. Ask about the capital stack — specifically: senior, mezz, equity sources
2. Require evidence — credit-approved term sheets, equity commitment letters
3. Factor stack risk into deposit / settlement terms — weak stack = larger deposit, harder sunset dates
4. Use stack quality as a buyer-tier filter — strong stack = institutional pricing tier