Equity Partners & Preferred Equity in Property Development Australia

Before considering an equity raise for a development, you will need professional advice from a property finance lawyer and a tax adviser, and in most structures a licensed trustee as well. Raising equity from outside investors means dealing in a financial product, so the structure, the disclosure and the licensing all have to be settled before a dollar is accepted, and the consequences of getting them wrong attach to the sponsor personally as well as to the entity. Every deal, every investor register and every state’s duty position is different. This guide sets out how the instruments work so that conversation starts further along. It does not tell you which structure or which partner suits your deal, and there is a list of the questions worth putting to your advisers at the end.

Australian property developers entering the 2026 cycle may be facing a tight equity environment. With banks running tighter capital ratios, APRA maintaining a countercyclical capital buffer, construction insolvencies elevated, and presale markets uneven across capital cities, the equity component of a feasibility may be the binding constraint for many small-to-mid-tier developers. This guide covers preferred equity, common equity, capital partners, and the waterfall structures that govern how returns are distributed. It complements the joint venture guide and the property development finance guide, which cover joint venture structures and the broader funding stack.

Figures and thresholds in this guide were current at the date of writing and change with the cycle and with legislation. Each is attributed to its source, and the source is the place to confirm it before you rely on it.

When developers raise equity versus debt

Equity sits at the bottom of the capital stack. It is the residual claim, paid only after every secured and unsecured creditor has been satisfied. That structural position is what makes equity expensive, and what makes the question of when to raise it rather than more debt a consequential one.

Several signals may suggest a project is equity-shaped rather than debt-shaped:

• The senior lender has reached its Loan to Value Ratio (LVR) or Loan to Cost (LTC) ceiling. Banks may cap construction Loan to Value Ratio (LVR) at 60 to 65 per cent and non-banks at 70 to 75 per cent, with selected facilities reaching higher on stronger sponsor profiles. Once the senior takes its slice, the remainder is the developer’s to solve.
• Mezzanine pricing may be uneconomic for the project size. Mezzanine debt has commonly been quoted in the range of 12 to 22 per cent per annum, which can prove unworkable on lower-margin projects.
• Presales may be insufficient. Industry survey data suggests a material share of construction loans now proceed without full presale cover, with most of that flexibility coming from non-banks. Where presales are thin, the equity layer typically thickens.
• Capital recycling across multiple projects. A developer running three or four projects concurrently may struggle to keep their own equity tied up in a single deal for 18 to 24 months. Third-party equity may free up sponsor capital.
• Land-banking or pre-Development Application (DA) stage. Senior lenders rarely fund land materially above 50 to 60 per cent of as-is value, so equity or mezzanine may bridge the gap until the approval re-rates the asset.

Equity is generally the most expensive layer in the stack, demands governance rights, and can dilute sponsor economics if structured poorly. The question is less “equity or debt” in isolation than how each layer is sized and priced for the risk it carries.

The capital stack, equity-first

A simplified Australian capital stack for a development project may look something like this. The ranges are indicative only and may shift materially with market conditions, project profile and sponsor track record.

The implication of stack ranking is that every layer above equity is paid first if things go wrong. A common equity holder absorbs the first dollar of loss once the project’s residual margin is exhausted, while preferred equity is generally paid before common equity but only after senior debt and any mezzanine are discharged.

Preferred equity versus common equity

The terminology in Australian property finance is loose, so it is worth defining before negotiating term sheets.

Common equity (sometimes called ordinary or sponsor equity) is the developer’s contribution plus any third-party equity invested on equivalent terms. It is the last layer paid in any waterfall. Its upside is uncapped, but it absorbs first losses. Common equity holders typically carry the governance rights of the special purpose vehicle (SPV), subject to negotiated reserved matters.

Preferred equity sits between debt and common equity. It is paid before common equity receives any return, but only after senior and any mezzanine debt is satisfied. Two archetypes are useful:

• Hard preferred equity behaves like quasi-debt. It typically has a fixed coupon, a defined maturity tied to project completion or refinance, and may involve a current-pay component plus an accrued component (payment in kind, paid at exit). Hard preferred often has limited upside beyond the coupon and may include a minimum multiple on invested capital.
• Soft preferred equity sits closer to the equity end. It may carry a smaller current coupon or none, a larger profit kicker or promote share, and a more equity-like risk and reward profile.

A senior lender may prefer the gap between its debt and the developer’s common equity to be filled with preferred equity rather than mezzanine debt for several reasons: there is no second mortgage, no priority deed to negotiate, the senior may treat the preferred equity as part of the borrower’s equity contribution for LVR and LTC purposes, and the documentation may be simpler. Preferred equity may also settle faster than a full mezzanine facility and may avoid intercreditor friction.

The distinction matters most at exit. Consider a $20 million total cost project funded with $14 million senior debt at 8 per cent, $3 million of preferred equity at a 12 per cent fixed coupon plus a 10 per cent profit kicker, and $3 million of common equity ($2 million developer, $1 million third party). If the project sells for $25 million after an 18-month construction and sell-down, the waterfall might pay senior debt and accrued interest first, then preferred equity its accrued return plus its kicker, and only then return capital to common equity holders. Any residual margin then flows to common equity in proportion to contributions, subject to the sponsor’s promote.

How equity partners price risk

The price of equity is a function of project risk, sponsor risk and market conditions. Developers approaching the equity market may expect partners to assess at least the following:

• Senior debt LVR and LTC. Higher senior leverage means a thinner equity buffer and higher equity risk.
• Presale cover. Strong presales reduce sell-down risk and may reduce required equity returns.
• Builder assessment. Independent contractor rating services have become a common part of Australian equity due diligence following the wave of construction insolvencies.
• Sponsor track record. Projects delivered, capital recycled, references, tax history, contingent liabilities.
• Planning status. A site with development consent, construction certificate and a signed builder contract carries materially less risk than one with a conditional approval.
• Project internal rate of return (IRR) and return on cost. Partners generally want headline metrics that comfortably exceed their hurdle rates.
• Exit strategy. A clear sell-down plan, residual stock strategy or refinance path.

Return expectations vary widely by partner mandate, project profile and prevailing risk-free rates, and any range quoted publicly ages quickly. Rather than anchoring on a published figure, the useful step is to obtain indicative terms from several partners for the specific deal and compare the all-in cost of each against the alternative.

The market context is worth understanding. ASIC published Report 814 on private credit in September 2025, signalling regulatory attention to the sector, and international capital has entered the Australian market through acquisitions and strategic stakes in domestic managers. This has professionalised the equity market, raised expectations on documentation and reporting, and raised the bar for sponsor presentation.

Waterfall structures explained

A waterfall is the contractual mechanism determining how project cash flows are distributed between investors and the sponsor. It is one of the most economically significant elements of any equity raise, and two structural variants are commonly seen.

European versus American waterfalls

A European waterfall (whole-of-fund or whole-of-deal) requires that all investors receive return of capital and their preferred return before the sponsor sees any promote. It is the more investor-friendly structure and is more common in fund-style vehicles. No promote leaks until everyone is whole, but the sponsor’s economics are deferred to the end.

An American waterfall distributes promote on a deal-by-deal basis as each project hits its hurdle. It is more common in single-asset SPVs and developer-led syndicates and is more sponsor-friendly, because promote can flow earlier. The trade-off is the risk of clawback if later distributions overpay the sponsor relative to the overall outcome, which is why most American waterfalls include lookback or clawback provisions.

Tier mechanics

A typical four-tier waterfall in an Australian property development might look like this:

1. Tier 1: Return of capital plus preferred return. All investors receive invested capital back plus a preferred return calculated on that capital. Preferred return rates commonly sit around 8 per cent IRR at the lower end, or 10 to 12 per cent in Australian preferred equity transactions.
2. Tier 2: GP catch-up. Once the investor has received its preferred return, the sponsor catches up. A common formulation is 50/50, or 100 per cent to the sponsor until it has received its target promote share on cumulative distributions to date.
3. Tier 3: First promote split. After catch-up, distributions are split, commonly 80/20 in favour of the investor, up to a second hurdle often around 15 per cent IRR.
4. Tier 4: Second promote split. Above the upper hurdle, often 18 to 20 per cent IRR, the split moves further in favour of the sponsor, commonly 70/30 or 60/40, rewarding outperformance.

IRR versus equity multiple hurdles

Hurdles can be defined two ways. An IRR hurdle ties the test to time value, so the longer the hold, the harder it is to clear. An equity multiple hurdle (for example 1.5 times invested capital) is independent of time. A “greater of” formulation requires both to be cleared, which may protect investors in slow-to-exit projects where IRR alone could overstate underlying performance.

For property development, where cash flows are typically lumpy with a single large distribution at completion, IRR-based hurdles are common, with the equity multiple test acting as a floor.

Cash flow versus capital event waterfalls

Operating cash flows during a hold can be distributed under one waterfall structure while sale or refinance proceeds are distributed under another. Build-to-sell residential developments rarely have meaningful operating cash flows, so a single capital-event waterfall typically governs. Build-to-rent and mixed-use projects may have parallel operating and capital waterfalls.

A worked example

Consider a $10 million project. The capital stack is $7 million senior debt at 8 per cent (interest-only, capitalised), $1 million hard preferred equity at 12 per cent fixed, and $2 million common equity ($1 million developer, $1 million external investor). The project completes and sells in 24 months for $14 million gross.

The approximate distribution:

1. Senior debt: $7 million principal plus roughly $1.0 million to $1.1 million of capitalised interest, totalling about $8.1 million.
2. Preferred equity: $1 million principal plus roughly $250,000 to $270,000 of accrued return at 12 per cent compounding, totalling about $1.25 million to $1.27 million.
3. Return of common equity capital: $2 million to common equity holders pro-rata.
4. Remaining margin: $14 million sale proceeds less $8.1 million senior, less $1.27 million preferred equity, less $2 million return of capital, leaving about $2.6 million of profit available.
5. Promote distribution: assuming an 80/20 split with no further hurdles, about $2.08 million flows to common equity holders pro-rata and about $520,000 to the sponsor as promote.
6. Of the $2.08 million to common equity, the developer and external investor each receive about $1.04 million on top of returned capital, on the assumption their original $1 million contributions were equal.

The numbers are illustrative. Real waterfalls are sensitive to GST treatment, capitalised interest mechanics, and the precise wording of the catch-up and promote tiers, which is why the distribution is worth modelling in detail with sensitivity to the coupon, the hurdle rates and the exit value before any document goes to an investor.

Investor archetypes: who funds what

Matching a project profile to the right kind of investor may be the difference between a successful raise and months of fruitless meetings. Six broad categories are typical in the Australian market, described here by category rather than by name, since mandates and appetites change frequently.

Passive high-net-worth investors (friends, family and warm network). Ticket sizes commonly range from $50,000 to $1 million, often raised under section 708 small-scale or sophisticated investor exemptions. Minimal governance involvement, though reporting expectations still apply. Generally suited to smaller projects.

Sophisticated investor pools, often introduced through brokers or capital advisers. Tickets commonly $250,000 to $2 million, typically supported by section 708(8) certificates from qualified accountants.

Family offices. Ticket sizes vary widely. Many have direct property allocations and may take preferred equity, common equity or full capital partner positions. They typically expect longer relationships, sophisticated documentation and direct access to the sponsor.

Capital partners (cornerstone or single-source). A single fund or family office taking the entire equity slice and behaving more like a joint venture partner. Often involves bespoke documentation and active governance, including investment committee seats and reserved matters.

Fund equity (managed schemes). Institutional managers running registered or wholesale schemes. Most have a minimum project size below which they will not engage, and their sponsor due diligence is institution-grade.

Syndicated equity (multi-investor SPVs). Wholesale syndicate managers pooling smaller investors into a single SPV for a specific project, usually as a unit trust with a corporate trustee, an information memorandum and a subscription process. Operators may be required to hold an Australian Financial Services Licence (AFSL) or operate as an authorised representative of a licensed trustee.

Which archetype fits depends on project size, sponsor track record, urgency, and how much governance the developer is prepared to share. Those are questions for the sponsor and their capital adviser rather than matters a guide can settle.

Term sheet anatomy

The economics of any equity raise live in the term sheet. The following terms typically appear, and any of them can shift the deal materially.

Coupon and accrual structure. For preferred equity, the coupon may be paid current, accrued and paid at exit, or split. Payment-in-kind accrual during construction is common, with current pay commencing at sell-down or refinance. The compounding base materially affects total return.

Equity kicker, promote share or minimum multiple. Hard preferred equity may include participation in residual margin above its fixed coupon, expressed as a percentage of profit or as a guaranteed minimum multiple on invested capital.

Cash flow sweep. A mechanism requiring available project cash to be applied to repaying preferred equity before any common equity distribution.

Drag-along and tag-along. Drag-along allows a majority holder to compel minorities to sell on the same terms; tag-along allows minorities to participate in a majority sale. Australian drag thresholds commonly sit around 75 per cent, with a range from 51 to 90 per cent seen in practice.

Pre-emptive rights, right of first refusal and right of first offer. Pre-emption rights give existing holders the first opportunity to subscribe for new units, protecting them from dilution. The refusal and offer rights regulate transfers of existing units.

Reserved matters. Decisions requiring investor consent, often additional debt, change of builder, change of control, related-party contracts, material variations beyond a threshold, and amendments to the development plan.

Step-in rights. On default events such as cost overrun, programme slippage or covenant breach, the equity partner may have the right to replace the project manager, take over development management or accelerate exit.

Information rights. Monthly cash flow reports, quantity surveyor reports, sales pipeline data and access to the underlying feasibility model.

Board or investment committee seats, with veto rights over reserved matters.

Personal guarantees and cost-overrun guarantees. A sponsor cost-overrun or completion guarantee is common. Personal guarantees are often required by the senior lender and may be sought by preferred equity holders in smaller deals.

Deadlock resolution and exit triggers. Buy-sell mechanisms to break governance deadlocks, mandatory sale or refinance triggers, and mandatory buy-out at a target IRR. The last is common in preferred equity structures, giving the developer a right to redeem the preferred equity at a defined multiple within a defined window.

These terms interact. A 12 per cent coupon with an aggressive cash flow sweep and a 1.4 times minimum multiple may produce a higher effective return to the partner than a 14 per cent coupon with neither feature, so the effective cost of a term sheet is something to model rather than read off the headline rate.

The Australian regulatory layer

This is the area where the largest dollar mistakes may be made, and every point below is one to work through with a property finance lawyer before a raise.

Section 708 disclosure exemptions

The default rule under Chapter 6D of the Corporations Act 2001 is that an offer of securities in Australia requires a regulated disclosure document, typically a prospectus. Section 708 provides exemptions that are the workhorse of developer-led equity raises:

• Small-scale offering exemption (s708(1) to (7)): up to 20 personal offers and up to $2 million raised in any rolling 12-month period.
• Sophisticated investor exemption (s708(8)): an investor with a current qualified accountant’s certificate confirming net assets of at least $2.5 million or gross income of at least $250,000 in each of the last two financial years. These thresholds have not been adjusted since the early 2000s and have been the subject of review, so confirm the current figure before relying on it.
• Minimum investment exemption (s708(8)(a)): a subscription of $500,000 or more.
• Professional investor exemption (s708(11)): AFSL holders, listed entities, regulated superannuation funds, and entities controlling at least $10 million.

Most developer raises rely on a combination of these, each with technical requirements that repay careful checking. The exemption belongs to the offer, so the evidence that each investor qualified has to be held at the time the offer is made.

Information memorandum versus PDS

For wholesale raises under section 708, the disclosure document is typically an information memorandum. It is not regulated in the way a Product Disclosure Statement (PDS) is, but it remains subject to the misleading and deceptive conduct provisions of the Corporations Act and the Australian Consumer Law, and ASIC enforcement has made clear that the accuracy bar in an information memorandum is meaningful. A PDS is required for retail offers of interests in registered managed investment schemes. A prospectus is the most onerous form and is rarely used in single-project developer raises. The information memorandum guide covers the document itself in detail.

AFSL and managed investment scheme considerations

A unit trust pooling capital from multiple unrelated investors typically falls within the definition of a managed investment scheme (MIS) under section 9 of the Corporations Act. Issuing interests in an MIS, which are financial products, generally requires the issuer to hold an AFSL or operate under one. A scheme must be registered with ASIC under section 601ED if it has more than 20 members or is promoted by a person in the business of promoting schemes, unless every offer falls within a section 708 exemption, which in practice means wholesale-only.

Pathways developers use to navigate the licensing question include holding their own AFSL, which requires at least one responsible manager with relevant experience, professional indemnity insurance and ongoing compliance obligations; operating as a corporate authorised representative of an external AFSL holder; or outsourcing trusteeship to a licensed third-party trustee, with the developer focused on origination and project management while the trustee carries the licence and fiduciary duties. Which is appropriate turns on how often the sponsor intends to raise, and is a question for the lawyer structuring the raise. The managed investment scheme guide and the syndicates guide cover the licensing analysis in more depth.

ASIC signalled supervisory focus on private credit through Report 814 in September 2025, and recent enforcement has included unregistered scheme prosecutions and substantial penalties. Addressing the licensing layer at the start is generally far cheaper than remediating it later.

Landholder duty and the Oliver Hume decision

In Oliver Hume Property Funds (Broad Gully Rd) Diamond Creek Pty Ltd v Commissioner of State Revenue [2024] VSCA 175, the Victorian Court of Appeal held that subscriptions by 18 unrelated investors under a common information memorandum could be aggregated as “associated transactions” for landholder duty purposes. No single investor held more than about 11 per cent, well below the significant-interest threshold that normally has to be crossed. The Court found the acquisitions formed “substantially one arrangement”, and the State Revenue Office (Victoria) subsequently invited voluntary disclosures from others who had raised capital the same way.

The decision applies most directly to Victorian landholders, but the underlying aggregation principle may extend conceptually to similar regimes elsewhere. Landholder duty thresholds and significant-interest levels differ by jurisdiction, so the exposure is state-specific and is one to price into the feasibility as a possible cost of the raise. The landholder duty guide sets out the state-by-state position.

Non-arm’s length income and SMSF investors

Where self-managed super funds invest in development unit trusts on non-arm’s length terms, the non-arm’s length income rules in section 295-550 of the Income Tax Assessment Act 1997 can apply, with the consequence that income is taxed at 45 per cent inside the fund rather than the concessional rate. The in-house asset rules under the Superannuation Industry (Supervision) Act limit funds to 5 per cent of fund assets in related-party unit trusts, subject to the ungeared unit trust exception in regulation 13.22C. Superannuation is a financial product, so anything touching an SMSF investor’s position is advice only a licensed adviser can give.

FIRB and foreign capital

Where foreign investors take stakes in developer entities holding residential land, Foreign Investment Review Board approval may be required. Thresholds and rules vary by investor type and asset, and application processes can take several months, so the lead time may need to be built into the capital-raise schedule.

Choosing a structure: SPV, unit trust or hybrid

Three structural archetypes dominate Australian developer equity raises, and which fits a given raise depends on the tax position of the investors, the intended hold, and the state where the land sits. Those are questions for a tax adviser on the specific facts.

Special purpose vehicle (Pty Ltd company). Equity is raised through ordinary or preference shares. The company is taxed at the corporate rate, with no flow-through and no capital gains tax (CGT) discount available.

Unit trust with corporate trustee. Income and capital flow through to unitholders, the trust does not pay tax in its own right, and capital gains may retain their character as they pass through, potentially attracting the CGT discount where the holding period and asset characterisation requirements are met. A fixed unit trust satisfying the ATO’s tests may also have a different land tax position in some states and clearer treatment of trust losses.

Hybrid trust. Combines unit trust and discretionary features. Less commonly used for development pools because the streaming rules can become complex and SMSF participation may be problematic.

Limited partnership is uncommon in Australia for property development, as the venture capital limited partnership regime is restricted to qualifying businesses. Bare trusts or nominees are used for landholding within joint venture structures rather than as the primary raising vehicle, and stapled structures are generally used only at larger scale.

Preparing for a raise

Capital does not respond to cold lists. The pathway to a raise typically involves three layers: credibility, documentation and targeted outreach.

Credibility generally means a track record of delivered projects, completed feasibilities and capital recycled across deals. For first-time developers, credibility may be borrowed from the broader team: an experienced project manager, a rated builder, a recognised quantity surveyor, and established legal and accounting advisers. The strength of the team often matters more to capital partners than the specific site.

Documentation typically means an information memorandum containing an executive summary, sponsor profile, market analysis with comparable sales and absorption data, planning status, a full feasibility with line-by-line costs, sensitivity analysis and cash flow profile, a capital stack diagram, the return waterfall, exit strategy, risks, governance, fees and disclosures.

The information memorandum, the investment management agreement and the underlying feasibility model have to reconcile precisely. A recurring source of investor disputes and regulatory attention is a raise where the memorandum quotes one set of returns, the management agreement’s fee schedule produces different numbers, and the underlying model contains a third set.

Targeted outreach must respect the anti-hawking provisions in section 992A. Mass cold emailing carries legal risk as well as being counterproductive. Channels that developers commonly use include development finance brokers, capital advisers, industry bodies such as the Property Council and the Urban Development Institute of Australia, and professional advisers with high-net-worth client bases. A targeted list of well-qualified prospects approached through warm introductions generally outperforms a broad campaign.

Documentation checklist

A typical Australian developer equity raise produces the following:

• Term sheet or heads of agreement, non-binding except for confidentiality and exclusivity.
• Information memorandum with full disclosures and risk warnings.
• Trust deed or constitution establishing the SPV.
• Subscription agreement between the issuer and each investor.
• Unitholders or shareholders agreement, governing reserved matters, drag and tag rights, pre-emptive rights and dispute resolution.
• Investment management agreement between the trustee or responsible entity and the investment manager.
• Development management agreement, scoping the developer’s role, fees and performance measures.
• Project control group charter, defining governance cadence and authority.
• Priority deed or intercreditor deed with the senior lender where junior debt or preferred equity sits in the stack.
• Builder contract and sales agency agreement.

Preparing a complete suite for a mid-market raise has commonly been quoted in the range of $40,000 to $100,000 in legal fees depending on complexity, which is a cost to carry in the feasibility rather than treat as an afterthought.

Exit mechanics

The exit is what equity partners are buying. Common pathways include:

Sale at practical completion, standard for build-to-sell residential, with the vehicle wound up after the last settlement and net proceeds distributed through the waterfall.

Refinance to a residual stock loan, where unsold stock remains at completion and a residual stock facility refinances the construction debt and any preferred equity, allowing sell-down to extend.

Mandatory buy-out at an IRR hurdle, common in preferred equity structures, where the developer has a right or an obligation to redeem the preferred equity at a defined multiple within a defined window.

Sale of the SPV, less common for single-project vehicles because of landholder duty implications, and more common for portfolios.

Drag-along on a capital event, where a majority holder triggers a sale or refinance and brings minorities along on the same terms.

The exit pathway is generally designed at the structuring stage rather than negotiated at the end, so the waterfall, the term sheet and the trust deed all reflect the intended exit.

Common pitfalls

Inadvertently triggering MIS registration. Crossing the 20-member threshold, or relying on an exemption that does not quite fit, can convert a wholesale raise into an unregistered managed investment scheme. Remediation can be expensive.

Misalignment between the memorandum, the management agreement and the model. One of the most common sources of investor dispute and regulatory attention.

Landholder duty aggregation. Following Oliver Hume, contemporaneous subscriptions by multiple unrelated investors may be aggregated, and state-specific advice is the only way to price the exposure.

Over-promising returns in marketing. Materials that promise specific returns without adequate risk warnings expose the sponsor to misleading and deceptive conduct claims. A representation about a future matter made without reasonable grounds is taken to be misleading under section 769C.

Failing to model the waterfall before the memorandum is issued. Going to market with an undercooked waterfall tends to produce last-minute renegotiation that erodes trust.

Inadequate licensing coverage. Issuing interests without proper licensing is a serious matter, and the position is generally far cheaper to fix before interests are on issue than after.

Using debt-style covenants in equity term sheets, or the reverse. Preferred equity is not debt, and the wrong covenants can either over-restrict the sponsor or leave the partner without meaningful protections.

Underestimating the time cost. A first-time raise may take six to twelve months from a standing start to closed funds.

What to ask your lawyer and tax adviser

These questions decide whether an equity raise works, and each turns on the specific deal, register and jurisdiction. They are set out here so the first meeting starts further along.

• Which section 708 exemption is each investor coming in under, and what evidence do we need to hold, at what date, to prove it?
• Does our structure create a managed investment scheme, and if so, do we need registration, our own AFSL, an authorised representative arrangement, or a licensed trustee?
• Who is the issuing entity, and is it properly licensed to issue these interests as principal?
• Does this raise risk landholder duty aggregation under Oliver Hume in the state where the land sits, and what is the exposure if it does?
• Is a unit trust or a company the better fit given our investors’ tax positions, the intended hold, and the land tax and duty position in this state?
• What do the drag, tag, pre-emption, reserved matters and step-in provisions actually do to our control if the project underperforms?
• Are the personal guarantees and cost-overrun guarantees capped and project-specific, or open-ended and cross-collateralised?
• Do the information memorandum, the investment management agreement and the feasibility model reconcile to the same numbers?
• Do our forecasts have reasonable grounds under section 769C, and what working papers do we need to keep to show it?
• If any investor is a self-managed super fund, what does that mean for non-arm’s length income and the in-house asset rules?
• If any investor is a foreign person, does FIRB approval apply, and what is the lead time?

Frequently asked questions

What is the difference between preferred equity and mezzanine debt in Australia?

Mezzanine debt is debt: it sits behind senior debt as a second mortgage with a priority deed, carries a fixed interest rate and a defined maturity. Preferred equity is equity: no mortgage, no priority deed, and its return is paid through the equity waterfall after senior debt and any mezzanine are repaid. Coupons may look similar, but the legal and structural positions differ.

What is a sophisticated investor under section 708?

Broadly, a person with net assets of at least $2.5 million or gross income of at least $250,000 in each of the last two financial years, evidenced by a current qualified accountant’s certificate, under section 708(8). These thresholds have been the subject of review, so confirm the current figures.

Do you need an AFSL to raise equity for a property development?

It depends on the structure. Issuing interests in a managed investment scheme generally requires an AFSL or operating under one. Common pathways are holding a licence, operating as a corporate authorised representative, or engaging a licensed trustee. Which applies to a given raise is a question for a financial services lawyer.

What is a drag-along clause and what threshold is typical in Australia?

A drag-along allows a majority holder to compel minorities to participate in a sale on the same terms. Australian thresholds commonly sit around 75 per cent, with a range from 51 to 90 per cent in practice. The threshold is negotiable and reflects the balance of control between sponsor and partner.

What was the Oliver Hume decision and why does it matter?

The Victorian Court of Appeal in [2024] VSCA 175 held that contemporaneous subscriptions by 18 unrelated investors in a property syndicate could be aggregated for Victorian landholder duty purposes, despite no investor crossing the usual significant-interest threshold. It matters because it changed how multi-investor raises are structured and priced for duty.