Peak debt is the most a development’s loan facility is ever drawn at a single point in time, and on most projects it lands near the end of construction, in the weeks before the first sales settle. It is not the total you borrow across the life of the deal, and it is not the total cost. It is the high-water mark of the debt, the deepest the project ever sits in the hole, and it is the number a lender sizes and prices the facility against. Size it too low and the facility runs short at the worst possible moment, with the building almost finished, the builder still claiming, and no income yet flowing.
This guide is written for the developer working out how big a facility a deal needs, how much equity has to sit underneath it, and how long the money is exposed before it comes back. It covers what peak debt actually is, how it differs from the peak funding requirement and the break-even point (three numbers that get muddled), why peak debt rather than total cost sets your facility limit, how capitalised interest and the order you draw equity change the peak, what pre-sale cover lenders want against it, how to read all three numbers off a cashflow model, a worked example end to end, the levers that reduce peak debt and pull break-even forward, how the states and territories shift the picture, the build-to-rent case, and what changes across the Tasman. Every benchmark is hedged, because costs, rates and lender appetite move with the cycle and with the specific deal.
What is peak debt in a property development?
Peak debt is the largest loan balance a development carries at any one moment, almost always reached late in the build before settlements start paying the facility down. Think of the loan balance as a curve over time. It starts at zero, climbs as the facility funds land and construction, keeps climbing while capitalised interest rolls onto it, tops out at a single highest point, then falls as completed stock settles and the proceeds repay the lender. That highest point is peak debt.
It helps to be clear about what peak debt is not. It is not the total amount drawn over the life of the project, because the same facility headroom can be drawn, repaid from an early settlement, and drawn again on a staged deal, so total drawings can exceed the peak. It is not the Total Development Cost (TDC), because equity funds part of the cost and the lender funds the rest. And it is not the profit, which is a far smaller number that only appears as cash right at the end. Peak debt sits in between: the deepest the lender is ever exposed on the deal.
The reason peak debt matters more than any of those other numbers is that a development spends nearly all of its cash long before it earns any. Money leaves early and steadily as land settles, consultants are paid, and construction draws down over a year or more. Money arrives late and in a rush, because off-the-plan deposits are generally held in trust and not available to fund the build, so the real inflow does not land until completed stock settles. On new residential stock, the Goods and Services Tax (GST) component is withheld by the purchaser and paid directly to the Australian Taxation Office (ATO) at settlement, so the cash that comes back to repay peak debt is the price net of that amount. The gap between cash going out and cash coming back is a long, deep trough, and peak debt is the bottom of it. A facility sized to the average monthly position, or to the cost spread evenly, will be short at the trough. Sized to the peak with headroom, the project can breathe.
Peak debt, peak funding and break-even: three numbers people confuse
These three terms describe different points on the same cashflow curve, and using them loosely is how developers undersize a facility or misjudge when their money comes back. Here is the clean version of each.
What is the peak funding requirement?
The peak funding requirement is the deepest point of the project’s cumulative cash position, the most total capital the deal needs available at one time. It is the bottom of the trough on the cumulative cashflow line, and it is funded by everything in the capital stack: developer equity, any preferred equity or mezzanine finance, and senior debt. If a project’s cumulative cash position bottoms out at negative $9,000,000, the peak funding requirement is $9,000,000, and that is the figure the whole stack has to cover.
What is peak debt?
Peak debt is the debt slice of that trough: the highest the loan balance reaches, after the equity contributed so far is accounted for, plus any capitalised interest sitting in the balance. If the peak funding requirement is $9,000,000 and the developer has put in $2,900,000 of equity by that point, the debt funds the remaining $6,100,000 of cash, and once you add the capitalised interest that has rolled onto the balance, the loan balance might sit around $6,550,000. That loan balance, not the $9,000,000 total, is peak debt, and it is what the facility limit is sized to. People often say “peak debt” when they mean the whole trough. For sizing a facility the distinction matters, because the lender funds the debt slice, not the equity underneath it.
What is the break-even point?
The break-even point is the month the cumulative cash position climbs back to zero, the point where the project has finally recovered everything it spent. Up to that month the deal is still in the red on a cash basis, even if individual settlements have started landing. After it, the project is in surplus and what remains is profit. Break-even almost always falls late, often very late, because the trough is deep and it takes several settlements to climb out of it. The lag between peak debt (near the end of construction) and break-even (well into the sell-down) is the window where timing risk lives, and it is the window a lender watches most closely.
Hold these apart and the rest of development funding gets clearer. The peak funding requirement sizes the whole capital stack. Peak debt sizes the senior facility. The break-even point tells you how long the money is exposed before the deal is whole again.
Why does peak debt size your facility, not total cost?
A lender sizes the facility to peak debt plus headroom because that is the most the loan will ever need to cover, and lending to the total cost would mean funding equity’s share as well. The facility limit is the ceiling on what you can draw. If that ceiling sits below peak debt, the facility is exhausted before the last progress claim is paid, and the project stalls with the building nearly complete. So the limit has to clear the highest point of the loan balance, including the capitalised interest that accrues right at the trough, with a margin on top for the things that push the peak deeper than the base case.
Peak debt then has to fit inside two further caps the lender applies, and the binding one is whichever is lower. The first is the Loan to Value Ratio (LVR), the facility as a percentage of the project’s end value, usually the Gross Realisation Value (GRV) or sometimes the Net Realisable Value (NRV). The second is the Loan to Cost Ratio (LTC), the facility as a percentage of the Total Development Cost (TDC). Australian senior lenders generally work to something like 60 to 70 per cent of Gross Realisation Value (GRV) or 70 to 80 per cent of Total Development Cost (TDC), with the lower of the two binding, though the exact ratios vary by lender, project and cycle. If peak debt comes in under both caps, the facility can be sized to the peak. If peak debt pushes through either cap, the developer has to fill the gap with more equity or subordinated capital, or shrink the deal.
This is why total cost is the wrong anchor. Two projects with the same Total Development Cost (TDC) can carry very different peak debt, because one is funded with more equity, draws its debt later, or settles stock sooner. The cost tells you how much capital the deal needs in total. Peak debt tells you how much of that the lender is being asked to carry at the deepest point, and that is the number the facility, the Loan to Value Ratio (LVR) and the Loan to Cost Ratio (LTC) all test.
Behind the lender’s caution sits the prudential framework. Under the Australian Prudential Regulation Authority (APRA)‘s Prudential Standard APS 220 Credit Risk Management, an authorised deposit-taking institution (ADI) must be able to limit the extent of its lending for land acquisition, development and construction, which is among the higher-risk lending an authorised deposit-taking institution (ADI) does. That constraint is part of why bank facilities are capped at conservative ratios and lean so heavily on pre-sales: the regulator expects the authorised deposit-taking institution (ADI) to manage its development exposure tightly, and the bank passes that discipline through to the developer as the terms on the facility.
How capitalised interest and drawdown order change peak debt
Two structural choices move peak debt without changing a single line of the build budget: whether interest is capitalised or serviced, and the order in which equity and debt are drawn. Both are worth understanding before you size a facility, because both can shift the peak by a meaningful amount.
How capitalised interest inflates peak debt
On most developments interest is capitalised, meaning it is added to the loan balance each month rather than paid in cash, because the project has no income to service it from until settlements begin. Capitalised interest compounds: it accrues on the drawn balance, rolls onto it, and then accrues on the larger balance the next month. The effect is that peak debt is higher than the cash the facility actually funded, because the balance includes the interest stacked on top. In the worked example below, the facility funds $6,100,000 of cash cost at the trough, but the loan balance is around $6,550,000 once capitalised interest is counted. The facility limit has to clear the $6,550,000, not the $6,100,000.
This is also why lenders reserve an interest provision inside the facility. The provision is part of the limit, set aside to cover the interest the loan is expected to accrue, and it is part of peak debt even though you never draw it as cash. The base cost of that interest moves with the cycle: the Reserve Bank of Australia (RBA) cash rate sits underneath most facility pricing, and it moves through the cycle with the RBA’s rate decisions, with development margins stacked on top. A longer, deeper trough means more capitalised interest, which lifts peak debt, which can push the facility through its Loan to Cost Ratio (LTC) or Loan to Value Ratio (LVR) cap, a feedback loop that catches developers who model interest as a flat percentage of cost rather than on the real monthly balance.
Does drawing equity first or pro-rata change the peak?
Yes, and it is one of the cleanest levers a developer controls. Senior lenders generally require equity to be spent first, or “equity at risk”, so the developer’s own capital funds the early costs (land, consultants, early works) before the facility draws at all. Drawing equity first keeps the debt at zero for the opening months and pushes the start of debt accrual later, which lowers both peak debt and the capitalised interest bill, because the loan sits drawn for less time. Drawing equity and debt together (pari passu, or pro-rata) means the loan starts accruing from the first month, so the balance, and the interest on it, build higher.
This is captured in an industry-standard assumption that around 55 per cent of a facility tends to be outstanding on average across the term, the figure commonly used to estimate capitalised interest before a full month-by-month drawdown is built. The practical point for sizing is that “average debt” and “peak debt” are not the same number. Interest is often estimated off the average drawn balance, but the facility limit is set by the peak. Confuse the two and the limit comes out too low.
What pre-sale cover do lenders want against peak debt?
Most banks want qualifying pre-sales that cover all of the debt, and often more, before they will release construction funding. The logic is direct: pre-sales are contracted settlements that will repay the facility, so a lender that has pre-sale cover over its peak debt has a contracted path to being repaid even if the open market softens during the build. As a rule of thumb, major banks have generally moved to requiring qualifying pre-sales covering around 100 per cent or more of the debt facility on residential development, well above the levels common a decade ago, while non-bank and private lenders may accept much lower cover, or none, in exchange for a higher rate. The exact threshold is a lender-by-lender call and moves with the cycle, so treat any single number as indicative.
“Qualifying” is the word that does the work. Lenders count a pre-sale only if it is likely to settle: an arm’s length buyer (not a related party), a deposit of usually 10 per cent held in trust, a contract with limited cooling-off and sunset risk, and often a cap on how many sales can go to a single purchaser or to foreign buyers, who generally need Foreign Investment Review Board (FIRB) approval to buy new dwellings. A handful of soft contracts from related parties will not move a credit assessment. A separate but related test some lenders apply is a peak debt cover ratio, checking that pre-sales (or an as-complete valuation) cover the peak debt by some margin, with cover of around 1.1 times the peak debt a figure that appears in feasibility practice. The principle behind both tests is the same: the lender wants the contracted or assessed value sitting over the peak before it funds the hole.
Pre-sale conditions have become enough of a brake on supply that government has stepped in. The New South Wales (NSW) Government’s Pre-sale Finance Guarantee, a $1,000,000,000 program with expressions of interest open from late 2025, has the state commit to purchase up to 50 per cent of dwellings in eligible projects, at a minimum 10 per cent discount to assessed market value, specifically to satisfy a lender’s pre-sale pre-condition so construction can start. The program exists because, in the government’s own words, a growing number of approved residential projects cannot proceed to construction due to a shortfall in the pre-sales lenders require. For a developer, it is one route to clearing the pre-sale hurdle on the peak debt when the open market is slow, though the discount and the fees mean it is not free capital. A development finance broker can be useful in working out whether a deal clears a bank’s pre-sale test as structured, or needs a non-bank facility, a guarantee, or more equity to get there.
How do you read peak debt and break-even off a cashflow model?
All three numbers fall out of one row of a month-by-month cashflow model: the cumulative cash position. Lay every cost and every receipt in the month it actually moves, total each month, then carry the running total forward. That cumulative line starts at zero, runs steadily negative through land and construction, reaches its lowest point near completion, then climbs back as settlements land. Reading the three numbers off it is mechanical once the line is built:
- The peak funding requirement is the lowest point of the cumulative line, the most negative the project ever gets. That is the total capital the deal needs.
- Peak debt is the highest the debt balance reaches, which you get by overlaying the funding stack on the cumulative line: spend equity first (or pro-rata), draw debt for the rest, capitalise interest onto the balance, and read off the top of the debt curve.
- The break-even point is the month the cumulative line crosses back through zero, when total receipts finally equal total spend.
Building that line by hand in a spreadsheet is doable but fiddly, because interest is recursive (it depends on the drawn balance, which depends on the timing of every other line), and because the funding stack has to be layered on correctly to separate peak debt from the total trough. This is the work a purpose-built feasibility platform is designed to carry. Once costs and revenue are scheduled in Feasly, the cashflow analysis surfaces the peak funding requirement and the month it occurs, the break-even month, and the peak debt balance with its blended Loan to Cost Ratio (LTC) and Loan to Value Ratio (LVR), so the three numbers come straight off the model rather than out of a manual reconciliation. The mechanics of laying out that cashflow, spreading construction on an S-curve and timing the Australian cost levers, sit in the development cashflow modelling guide; the point here is that peak debt and break-even are outputs of that model, not inputs you guess at.
A worked example: finding peak debt and break-even
Take a small project and run a simplified cashflow to see where peak funding, peak debt and break-even actually fall. All figures are indicative, modelled net of Goods and Services Tax (GST), and the timeline is compressed to quarters so the arithmetic is easy to follow. A live model would run monthly and date every line.
Assume a 12-townhouse project with these indicative totals: land and acquisition including transfer duty of $3,000,000; consultants and approvals of $400,000; construction of $4,800,000; contingency drawn of $250,000; holding costs of $200,000; selling and marketing of $450,000; and finance costs (establishment fees plus capitalised interest) of around $600,000. That is a Total Development Cost (TDC) near $9,700,000. Net sales proceeds come in around $11,100,000, for a profit on the order of $1,400,000 and a margin on cost near 14 per cent. The deal is funded with $2,900,000 of developer equity (about 30 per cent of the Total Development Cost) and a senior facility for the rest, with equity drawn first.
Now watch the cumulative funding requirement, quarter by quarter, alongside the debt balance underneath it:
| Quarter | What happens | Cumulative funding requirement | Debt balance |
|---|---|---|---|
| Q1 | Land settles, transfer duty paid, design begins | −$3,200,000 | $300,000 |
| Q2 | Approvals, holding costs, early works | −$3,600,000 | $700,000 |
| Q3 | Construction starts (slow on the S-curve), interest begins | −$4,500,000 | $1,600,000 |
| Q4 | Construction ramps | −$6,100,000 | $3,200,000 |
| Q5 | Construction at full pace, interest capitalising | −$7,800,000 | $4,900,000 |
| Q6 | Construction completes, last claims, peak interest | −$9,000,000 | $6,550,000 |
| Q7 | First four settlements land, facility starts repaying | −$5,500,000 | $3,050,000 |
| Q8 | Next four settlements | −$1,900,000 | $0 |
| Q9 | Final four settlements | +$1,400,000 | $0 |
Read the three numbers off the table. The peak funding requirement is $9,000,000 at Q6, the deepest the cumulative line ever gets. That is what the whole capital stack has to cover. Peak debt is $6,550,000, also at Q6, the top of the debt balance column. Note that it sits $450,000 above the $6,100,000 of cash the facility funds at that point ($9,000,000 trough less the $2,900,000 of equity already in), because capitalised interest has rolled onto the balance. The facility limit has to clear the $6,550,000, so a sensible limit with headroom might be around $6,900,000. Break-even falls in Q9, when cumulative settlements finally lift the project back above zero, late in a roughly two-year-plus program and well after construction finished.
Now test peak debt against the caps. Against a Gross Realisation Value (GRV) of around $12,200,000 inclusive of Goods and Services Tax (GST), peak debt of $6,550,000 is a Loan to Value Ratio (LVR) near 54 per cent, comfortably under a 65 per cent ceiling. Against the Total Development Cost (TDC) of $9,700,000, it is a Loan to Cost Ratio (LTC) near 68 per cent, under an 80 per cent ceiling. Both caps clear, so the facility can be sized to the peak. On pre-sales, a bank wanting cover of around 100 per cent of the debt would want roughly $6,550,000 of qualifying pre-sales before releasing construction funding, which on this project is around six to seven of the twelve townhouses pre-sold. If only three or four are pre-sold, the deal does not fund as a bank facility without more equity, a non-bank lender, or a pre-sale guarantee.
The example also shows why timing is the real risk. Suppose the sell-down slows and the Q7 and Q8 settlements each slip a quarter. The profit barely changes, but the project now sits near its $9,000,000 peak for two extra quarters, with interest still capitalising on a fully drawn facility the whole time. Peak debt rises past the $6,900,000 limit, break-even pushes out toward Q11, and a facility sized exactly to the base-case peak is now short. Nothing about the project’s profitability changed. The timing did, which is why a developer should run the cashflow with the settlement dates pushed back before committing, not after the stock fails to sell.
How do you reduce peak debt and reach break-even sooner?
The most effective lever is to bring income forward, because every dollar that settles earlier comes straight off the debt balance and lifts the project out of the trough sooner. The levers that matter, roughly in order of how much they move the numbers:
- Stage the project. Splitting a larger development into stages lets the proceeds from an early stage repay debt and fund the next, so the loan never has to carry the whole scheme at once. This is the logic behind a peak debt facility, where the limit is set to the worst point of a phased programme rather than the sum of every stage. Staging lowers peak debt at the cost of a longer overall timeline, so the trade is funding exposure against duration.
- Secure genuine pre-sales that settle promptly. Pre-sales do more than satisfy the lender’s pre-condition: they shorten the climb out of the trough once construction finishes, provided the contracts settle on completion rather than dragging. Pre-sales that settle quickly pull break-even forward.
- Sequence equity first. As covered above, spending equity before drawing debt keeps the loan balance at zero for longer and cuts capitalised interest, lowering peak debt directly.
- Defer or stage the land payment. Land is the first big outflow and sits at the bottom of the trough for the whole project. A put and call option or deferred or vendor terms can delay when the land cash leaves, keeping the early debt balance lower, though the cost and the duty treatment of the structure need checking against the deal.
- Fill the gap with subordinated capital rather than senior debt. Where peak debt pushes through the senior cap, mezzanine finance or preferred equity can cover the shortfall without breaching the Loan to Cost Ratio (LTC) or Loan to Value Ratio (LVR) on the senior facility. It is more expensive than senior debt, so it is a tool for filling the top of the stack, not the base.
- Compress the timeline. A faster approval and a tighter build mean less time holding land and accruing interest before income arrives, which lifts the project out of the trough sooner and lowers the capitalised interest inside peak debt.
Most of these are timing moves, and timing is exactly what a cashflow model lets you test. Modelling the deal with and without staging, or with equity drawn first against pro-rata, shows the effect on peak debt before any of it is committed. Scenario comparison and sensitivity testing in Feasly are built for this: model the staged and unstaged versions side by side, or flex the settlement timing, and watch the peak debt balance and the break-even month move. Reducing peak debt usually trades against either duration or return, so the point of the exercise is to see the trade clearly, not to chase the lowest peak at any cost. The effect on the project’s Internal Rate of Return (IRR) is part of that trade, since a lower peak held for longer is not always the better deal.
How do state and territory rules change peak debt?
The mechanics of peak debt do not change across the country, but several state-set costs and timelines change how deep the trough gets and how long the project sits in it. Peak debt is read the same way in Perth as in Parramatta. What differs is the cashflow that feeds it.
The largest lever is the planning approval timeline, because time spent holding land that is not yet producing income deepens the trough before construction even starts. A slow Development Application (DA) means more holding cost and more pre-construction interest stacked against the funding line, and a later income date. Approval pathways and timeframes differ by jurisdiction, so the same building can carry a different peak depending on where it sits.
Two state taxes sit near the bottom of the trough for the life of the project. Transfer duty on the land is a large early outflow, levied by each state and territory at its own rates and generally payable within a set statutory window. In New South Wales (NSW), for example, Revenue NSW requires transfer duty within three months of the liability date, though buyers of residential property off the plan may be eligible for a duty deferral that pushes the payment out. Victoria charges its own land transfer duty and Queensland its own transfer duty, each on different rates and timing. Because duty falls early and is large, it lands almost entirely on equity at the bottom of the trough, and the timing of when it is paid moves the early debt balance. Land tax, a holding cost assessed under each jurisdiction’s own regime such as Revenue NSW land tax, accrues across the hold, so a longer hold in a higher land tax state stacks more cost against the funding line and deepens the trough.
The rhythm of the largest outflow, construction, is also set at the state level. Security of payment legislation in each jurisdiction, such as the New South Wales (NSW) Building and Construction Industry Security of Payment Act 1999, gives the builder a statutory right to be paid progress claims within set timeframes, so construction cash leaves on a rhythm the developer cannot simply defer to suit the debt balance. The timeframes differ across New South Wales (NSW), Victoria (VIC), Queensland (QLD), South Australia (SA), Western Australia (WA), Tasmania (TAS), the Australian Capital Territory (ACT) and the Northern Territory (NT). For peak debt, the practical point is that the largest draws fall on a statutory schedule, so model them on their real dates rather than an idealised drawdown.
The one genuinely state-specific tool on the funding side is the New South Wales (NSW) Pre-sale Finance Guarantee covered above, which has no current equivalent in the other states, though it is worth checking each state’s housing programs because the policy settings are moving quickly. For South Australia (SA), Western Australia (WA), Tasmania (TAS), the Australian Capital Territory (ACT) and the Northern Territory (NT), the principle is the same as the eastern states even where the rates and timeframes differ: a slower approval and higher holding taxes mean a deeper, longer trough and a higher peak debt on the same end profit. Benchmarking a peak against a national rule of thumb without adjusting for the jurisdiction can mislead.
How does peak debt work for build-to-rent and build-to-hold?
For a build-to-rent or build-to-hold project, there are no sales to repay the facility, so peak debt is not cleared by a sell-down and break-even becomes an income question rather than a settlement one. On a build-to-sell deal, the debt curve falls as stock settles. On a Build-to-Rent (BTR) deal, the developer holds the completed building and lets it, so the construction debt has to be refinanced into longer-term debt at completion, and the project breaks even when the rental income covers the running costs and the debt service rather than when settlements land.
That shifts which ratios bind. Through construction, peak debt is still sized the same way, to the deepest point of the loan balance. At completion, the facility terms out into investment debt sized on the building’s income, where the lender looks at the Interest Cover Ratio (ICR) or the Debt Service Coverage Ratio (DSCR), the ratio of Net Operating Income (NOI) to interest or total debt service. Australian lenders commonly want a Debt Service Coverage Ratio (DSCR) comfortably above 1.0, often around 1.25 times or higher, so the income has clear headroom over the debt service. The break-even for a Build-to-Rent (BTR) project is then a break-even occupancy: the occupancy rate at which Net Operating Income (NOI) covers operating costs and debt service. Below it the developer tops up the shortfall; above it the building is self-funding. A project that needs 85 per cent occupancy just to break even carries far more risk than one that breaks even at 65 per cent.
The timeline is longer and the exposure is held for years rather than months, so the things that improve a Build-to-Rent (BTR) position are the ones that lift Net Operating Income (NOI) or lower the cost of the long-term debt, including any land tax concessions or other settings that apply to eligible Build-to-Rent (BTR) projects in the relevant state. The construction-phase peak debt discipline is identical to a build-to-sell deal; what changes is that the debt does not get repaid by sales, so the analysis carries through into the income phase.
What about New Zealand?
The peak debt method travels to New Zealand unchanged, but the inputs that drive the trough differ, and the largest difference works in the developer’s favour early on. New Zealand has no stamp duty or transfer duty on land, so the large early outflow that sits at the bottom of an Australian project’s trough is simply absent. That tends to make the early funding requirement shallower than an equivalent Australian deal, all else equal, because the land cash that leaves on day one is the purchase price without a duty impost on top.
The rest of the picture rhymes with Australia. Construction debt is still sized to peak debt, lenders still want pre-sale cover before they fund the build, and the cumulative line still bottoms out near completion before settlements climb it back to break-even. The Goods and Services Tax (GST) runs on different rules from the Australian system, with its own treatment of property and no margin scheme equivalent, so the netting of sales proceeds into the cashflow works differently and should be modelled on the New Zealand basis. The planning timeline that governs how long a project holds land before it can build runs through the resource consent system rather than an Australian Development Application (DA). On the exit, a developer should check the Inland Revenue Department (IRD) bright-line property rule, which from 1 July 2024 taxes a residential sale within two years of acquisition, because it can affect the timing of when stock is sold and therefore when the debt is repaid. The shape of the curve is the same; swap the inputs rather than assume the Australian settings carry over.
Frequently asked questions
What is peak debt in property development? Peak debt is the largest loan balance a development carries at any single point in time, almost always near the end of construction before settlements start repaying the facility. It includes the capitalised interest sitting in the balance. It is not the total borrowed over the life of the deal, not the Total Development Cost (TDC), and not the profit. It is the deepest the lender is ever exposed, and it is the number the facility is sized to.
What is the difference between peak debt and the peak funding requirement? The peak funding requirement is the deepest point of the project’s total cash position, funded by the whole capital stack of equity, mezzanine and senior debt. Peak debt is only the debt slice of that trough: the peak funding requirement less the equity contributed by that point, plus capitalised interest. The peak funding requirement sizes the whole stack; peak debt sizes the senior facility.
How is peak debt used to size a loan facility? A lender sets the facility limit to clear peak debt plus headroom, then checks that peak debt fits inside the Loan to Value Ratio (LVR) cap (the facility as a percentage of Gross Realisation Value (GRV)) and the Loan to Cost Ratio (LTC) cap (as a percentage of Total Development Cost (TDC)), with the lower of the two binding. If peak debt pushes through either cap, the developer fills the gap with more equity or subordinated capital.
What is the break-even point in a development cashflow? The break-even point is the month the project’s cumulative cash position climbs back to zero, when total receipts finally equal total spend. It usually falls late, well after construction finishes and several settlements into the sell-down, because the trough is deep. The lag between peak debt and break-even is the window where timing risk is greatest.
How can a developer reduce peak debt? The biggest levers are staging the project so early proceeds repay debt before the next stage draws, securing genuine pre-sales that settle promptly, drawing equity before debt to cut capitalised interest, deferring the land payment, and compressing the timeline so less interest accrues. Most are timing moves, and a cashflow model lets you test each one’s effect on the peak before committing.
How much pre-sale cover do banks want against peak debt? Major Australian banks have generally moved to requiring qualifying pre-sales covering around 100 per cent or more of the debt facility on residential development, while non-bank and private lenders may accept much lower cover or none in exchange for a higher rate. The exact threshold moves by lender and cycle, and only arm’s length contracts likely to settle count as qualifying.
The bottom line
Peak debt is the high-water mark of the loan, the deepest the lender is ever exposed on a development, and it is the number that sizes and prices the facility. It is not the total cost and not the profit, and confusing it with the peak funding requirement (the whole trough) or the break-even point (when the project climbs back to zero) is how developers undersize a facility or misjudge when their capital comes back. Build the cumulative cashflow month by month, overlay the funding stack to separate peak debt from the total trough, capitalise interest onto the real balance, and check the peak against the Loan to Value Ratio (LVR) and Loan to Cost Ratio (LTC) caps and the lender’s pre-sale cover. Then test the timing, because peak debt and break-even both move with the settlement dates, and a facility sized to the base case is short the moment the sell-down slows. Get peak debt right and the rest of the funding decision (how much equity, how much senior debt, where mezzanine fills the gap) falls into place around it.
This guide is general information for property developers and does not take your specific circumstances into account. Lending terms, tax rates and regulations change, so confirm the current position with the relevant primary sources and your own professional advisers before relying on any figure for a live deal.