Stretch Senior Debt Financing in Brisbane

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Brisbane stretch senior represents a unique first-ranking facility, enabling developers to surpass traditional senior limits without the need for a second lender. While conventional senior debt may hit a ceiling and create an equity gap, stretch senior serves to effectively bridge that divide with a single mortgage, one facility agreement, and one lender.

Poinsettia Capital specializes in property investment finance, particularly in arranging Brisbane stretch senior debt for developers across Brisbane and South East Queensland. Acting as an independent adviser rather than a lender, our directors bring extensive experience from the institutions that offer this financing. Our senior debt advisory expertise empowers us to pinpoint authentic Brisbane stretch senior options, comprehend their pricing, and formulate submissions that successfully secure the required funding.

A conventional senior lender typically funds about 60 to 65% of a project’s gross realisable value (GRV), or 70 to 75% of total development cost (TDC). However, in the context of property investment finance, Brisbane stretch senior options can elevate that advance rate to approximately 75% of GRV or even 85 to 90% of TDC, all while preserving a first-ranking position on the title.

This strategy allows you to benefit from a single first mortgage, thus avoiding the complications of a second creditor and intercreditor deed. Additionally, you'll manage just one facility agreement with a single lender throughout the construction phase. While the margin may be higher than standard senior debt, this increase reflects the lender taking on the top slice of risk. Generally, there are also lighter pre-sale requirements compared to a traditional bank senior facility.

The simplicity in achieving higher leverage through Brisbane stretch senior financing is highly appealing. By choosing this option, you gain access to additional funding without the complexities associated with a second lender, intercreditor deeds, or the coordination challenges of a mezzanine debt layer. For those in need of expert guidance, senior debt advisory services can effectively help navigate these options.

Two essential measures govern property investment finance loans, and they are not interchangeable. LVR assesses the debt against the project's end value (GRV), while LTC evaluates it against the total development cost (TDC). A lender will provide both metrics and offer the lesser of the two. For a healthy-margin project, the cost test typically prevails; however, for a thin-margin project, the value test becomes significant, which is an important consideration early on for Brisbane stretch senior facilities.

In the context of a Brisbane stretch senior facility, anticipate that the advance may reach about 75% of GRV or up to 85 to 90% of TDC, influenced by factors such as the project, location, and sponsor. The definitive amount will always be the lesser of these two tests, emphasizing the crucial role of senior debt advisory in navigating these financial options.

The Brisbane stretch senior financing option is positioned above the standard senior in terms of margin; however, the headline rate does not capture the complete picture. Relying solely on rate comparisons in property investment finance can be misleading. These financing facilities, commonly offered by institutional private credit funds, determine their pricing based on a target internal rate of return on the capital deployed, rather than just a margin on the balance. 

Since a construction facility draws progressively and makes repayments at the end, the fund relies on establishment fees, line fees, and often a minimum interest period or term to achieve that return. This situation indicates that two facilities with identical headline rates can exhibit very different true costs when fees and minimum terms are considered. To fairly assess options in property investment finance, it's essential to calculate the all-in cost across the actual timeline of your project, which is exactly what our senior debt advisory team does before recommending any financing alternatives.

Brisbane stretch senior is primarily seen as a non-bank product, given that major banks seldom offer these advance rates. This scenario places the market under the guidance of institutional private credit managers who focus on senior debt advisory and Brisbane stretch senior first-mortgage lending. The demand for these products fluctuates based on asset class, location, sponsor, and the current phase of the cycle. This variability underscores the importance of understanding who is actively participating in property investment finance this quarter, rather than relying solely on published rate cards.

A Brisbane stretch senior is often well-suited for property investment finance projects located in areas with established demand. In these cases, you might look to leverage in the mid-70s as a percentage of the Gross Realization Value (GRV) rather than pursuing the highest possible leverage. It's beneficial to focus on a single lender and maintain a unified document set throughout the construction process. Ensuring simplicity is crucial during the build phase, especially when dealing with variations, extensions, and drawdown timing alongside a cohesive credit team.

However, this approach isn't the only way to secure higher leverage. An alternative strategy is to keep a conventional senior facility while also utilizing a Brisbane stretch senior finance option with mezzanine finance behind it. These two strategies represent structural alternatives rather than layers designed to be combined, typically resulting in similar total costs. Thus, the primary focus should be on the structural decision rather than merely the cost involved. Additionally, we offer a comprehensive analysis on evaluating the advantages of a Brisbane stretch senior against a senior-plus-mezzanine structure in our dedicated article on senior debt advisory.

We begin by testing the numbers first. We conduct GRV and TDC tests on the feasibility of your project, showcasing what a Brisbane stretch senior facility can achieve before it enters the market. As part of our expertise in property investment finance, we align your deal with the right funder, recognizing that the appetite for Brisbane stretch senior financing is continually evolving. We identify which funds are currently offering Brisbane stretch senior financing, their terms, and the relevant asset classes and locations. Our meticulous submission process ensures your deal is well-positioned. Our directors, experienced in writing and assessing credit papers for institutional investment committees, present your proposal in alignment with committee expectations—covering feasibility, sensitivities, the sponsor, and exit strategy. Finally, we implement a competitive process; you won’t settle for the first stretch offer. We price the field on an all-in basis according to your genuine timeline and negotiate terms that extend beyond just the rate, ensuring you receive the best senior debt advisory possible.

How high can Brisbane stretch senior financing go? Typically, it can reach around 75% of the GRV, or up to 85 to 90% of the total development cost, under a single first mortgage. In the realm of property investment finance, the loan is always the lesser of those two tests.  

Is a Brisbane stretch senior product cheaper than mezzanine financing? On an all-in basis, the cost comparison between a stretch facility and a senior-plus-mezzanine stack at the same leverage often comes close. The real distinction lies in the structure: with one lender providing a single document set versus having two lenders and an intercreditor deed. Therefore, focusing on the all-in cost rather than just the headline rate is essential.  

Do banks offer Brisbane stretch senior products? Rarely at these advance rates, since they are mainly considered a non-bank and private credit product, which aligns with our senior debt advisory focus throughout the lending process.  

What pre-sales will I need? Generally, this is less than what a traditional bank senior facility would require, and the specifics can vary by lender, asset class, and location. We negotiate this aspect as part of our terms.

If you've encountered an equity gap and want to explore what a Brisbane stretch senior facility could achieve with your numbers, we can model it and run a competitive process tailored to your needs. Our expertise lies in senior debt advisory and property investment finance, and we provide construction finance solutions across Queensland. Start the conversation today.  

Every deal is unique. Share your details with us, and we’ll assess the best funding structure for your property investment finance needs with our experienced team.  

Manuel Paraskevos  

manuel@poincap.com.au  

0415 969 572  

260 Queen Street, Brisbane QLD 4000