Mezzanine finance Australia: a property developer's guide
Mezzanine finance is subordinated debt. It sits between the senior facility and the developer's equity in a development capital stack, secured by a registered second mortgage or an unregistered position behind the senior lender, and priced above senior rates because it wears more of the risk.
Aurelius Private are private lending brokers. We structure mezzanine positions for Australian developers and place them with lenders on our 131+ lender panel who write subordinated debt. This guide covers how the structure works, what it costs, and when it makes a development finance feasibility viable.
Where mezzanine sits in the capital stack
Most senior construction finance facilities cap out at 65–70% of total development cost (TDC). The majors have kept pulling back from speculative residential stock, and non-bank senior lenders have tightened their LTC ratios in step with broader credit conditions.[1] That leaves a gap, and a developer has three ways to fill it:
- Put in more equity, which ties up capital that could be working on other projects
- Bring in a JV equity partner, which means giving away profit share and some control
- Stack mezzanine behind the senior, which fills the gap at a defined cost
On a $10M TDC project, the difference is material:
| Layer | % of TDC | $ amount |
|---|---|---|
| Senior debt | 65% | $6.5M |
| Mezzanine | 20% | $2.0M |
| Developer equity | 15% | $1.5M |
| Total | 100% | $10M |
Without mezzanine, the developer is carrying $3.5M of equity or giving away a share of the profit. With a mezzanine layer behind the senior, the equity requirement drops to $1.5M and the developer keeps the project economics.
What mezzanine finance costs in Australia
Mezzanine is expensive money. The position is subordinated: if the deal goes wrong, the mezzanine lender collects whatever is left after the senior is repaid, which can be nothing. The rate reflects that.
Current market pricing in Australia, as at mid-2026:[2]
- Coupon interest of 14–20% p.a. for well-structured deals with strong presales
- 22–24% p.a. at higher LTC or for weaker borrower profiles
- Establishment fees of 2–4% of the mezzanine facility
- Equity kickers of 2–5% of project profit in tighter structures
All-in, the effective cost usually lands somewhere between 19% and 25% p.a. depending on LTC, presale coverage, track record, exit certainty and location.
What pushes the rate up: blended LTC above 85% of TDC, thin presales, a first project, a regional or secondary-market site, or construction risk concentrated late in the build. What brings it down: a proven track record, presales at or above 100% of total debt, a capital-city site, and a senior lender already committed.
Running the blended cost test
Mezzanine only works if the project margin can absorb it. Run this before you commit to anything.
Senior debt at 8.5% p.a. on 65% of TDC, plus mezzanine at 18% p.a. on 20% of TDC:
(65% × 8.5%) + (20% × 18%) = 5.5% + 3.6% = 9.1% blended financing cost on deployed capital
On a project running at a 25% gross development margin, 9.1% is workable. The project stays in the black with room for contingency and cost overrun. On a 15% margin in a softening presale market, the same stack can kill the feasibility outright.
Most mezzanine lenders also want to see minimum profit on TDC of around 18–22% on their own feasibility assessment before they'll write the position.[2] That's the practical floor. Below it, the risk outruns the return and most of the panel steps out.
When mezzanine makes a development work
The scenarios where mezzanine comes up tend to repeat:
- The senior cuts out 8–12% of TDC short of what the project needs. Too big for a minor equity top-up, too small to justify bringing in a JV partner.
- The developer's equity is spread across several concurrent projects, and mezzanine replaces capital that's working elsewhere.
- The JV equity offer on the table costs more than the mezzanine coupon. A 30% profit share can be dearer than a 20% p.a. facility if the project runs to time and sells out.
- Presales are strong but the capital timing is tight. Forward sales give mezzanine lenders the exit certainty they need, and the developer needs the facility before equity recycles out of the last project.
How Aurelius Private arranges the deal
Aurelius Private are private lending brokers. We structure the mezzanine facility, place it with the right lender on the panel, and coordinate the intercreditor process. See how Aurelius Private works.
The reason to run this through a broker is access. Mezzanine lenders each have their own view on LTC tolerance, presale coverage, geography, builder credit quality and intercreditor terms. A deal one lender declines, another approves at better pricing. One process, multiple appetites.
The process we run:
- Scenario review: LTC, presale coverage, senior lender identified, TDC reconciled against the QS cost plan
- Structure design: mezzanine quantum, term, interest treatment (capitalised or cash-pay), security position
- Panel placement: matched to mezzanine lenders on our 131+ panel by credit appetite, location preference and project type
- Intercreditor coordination: the mezzanine lender's cure rights, enforcement rights and standstill terms negotiated against the senior lender's requirements before drawdown
- Drawdown: milestone-based alongside QS progress claims, aligned to the senior facility's construction drawdown schedule
We broker mezzanine from $500K to $15M+, on development projects from $5M to $50M+ TDC.
The risk picture, and what ASIC flagged
ASIC's September 2025 review of Australian private credit singled out mezzanine and subordinated positions as the most sensitive part of the development capital stack.[1] A 10% fall in asset value can leave the senior lender whole and wipe out the mezzanine lender's margin entirely. That asymmetry is what the pricing pays for.
For developers, it shows up as specific lender requirements:
- Presale coverage. Most mezzanine lenders on our panel want presales at 60–100% of total debt (senior plus mezzanine) before drawdown starts.
- An independent valuation, separate from the senior lender's report.
- Cure rights. The mezzanine lender needs the contractual right to cure a default on the senior facility before the senior enforces, negotiated into the intercreditor agreement.
ASIC's November 2025 progress report put Australia's private credit market at roughly $200 billion, with property development and construction the largest single sector.[3] Subordinated positions are under more regulatory scrutiny than they were two years ago. Getting the structure and the intercreditor documented properly matters.
When mezzanine doesn't stack up
Not every funding gap should be filled with subordinated debt.
- Project margin below 18–20%. The financing cost can erase the feasibility. Model the blended cost before you approach anyone.
- No presales. Most mezzanine lenders won't draw without coverage, and the few who will charge heavily for the speculative risk.
- A secondary market with soft demand. Appetite for subordinated positions narrows quickly outside Sydney, Melbourne, Brisbane and Perth.
- Builder risk loaded late in the program. If cost-to-complete is back-ended and the builder is under financial pressure, the mezzanine security is most exposed at the point of maximum project risk.
Knowing these limits before you go to market saves weeks. We review every scenario before any lender submission, including whether mezzanine is the right structure at all. Sometimes a stretch senior or a JV produces a better outcome on cost.
Got a development that needs a mezzanine layer?
Submit a scenario to Aurelius Private. We come back within four business hours with an indicative structure, lender path and pricing band — no formal application required.
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