Most property development guides spend ninety percent of their attention on the build phase. The selldown phase, which is where IRR typically gets made or destroyed, gets a paragraph. That mismatch reflects how the industry talks about itself rather than how deals actually play out. By the time a developer has reached practical completion on a multi-unit project, the cost base is largely fixed. What happens next, specifically how quickly stock clears and at what financing cost during the tail, is what separates a project that lands its target return from one that limps across the finish line at a fraction of forecast IRR.
Residual stock finance and the broader family of development exit finance products exist precisely to manage this phase. They are some of the least understood instruments in the Australian property finance stack, partly because the content available online is dominated by lender and broker product pages rather than independent technical analysis. This guide takes the opposite approach. It treats exit finance as a capital structure decision, walks through product mechanics, pricing, qualification criteria, and feasibility modelling implications, and frames the decision in the context of current Australian regulatory and market conditions.
The guide is pitched at developers running their second through fifth or later projects, financiers and capital partners reviewing exit risk, and feasibility analysts who need to model the post completion phase with the same rigour as the construction phase.
The exit finance family, terminology disambiguated
Exit finance is not a single product. It is a family of products that share one purpose, paying out a construction lender at or around practical completion, but differ materially in trigger point, security base, and pricing. The terminology is used inconsistently across the market, so it pays to be precise.
Development exit finance
The broadest term. Any facility that refinances a construction loan at or shortly after practical completion. The construction risk has been retired, the building exists, the certifier has signed off, and the lender is taking a position on completed property, not on works in progress. Development exit finance sometimes refers to a specific bridging style product where some units remain unsold and the facility is treated as a hybrid of bridging and stock loan.
Residual stock loan or residual stock finance
A specific subset of development exit finance. The facility is secured against the unsold strata titled stock in a completed development, valued on an as if complete basis. Each unit typically gets its own sub facility or allocated portion of the loan, with a partial release mechanism that pays down a specified portion of the loan when each unit settles. This is the dominant product in the Australian market for refinancing unsold completed apartments and townhouses.
Stretched senior at completion
Some senior construction facilities are structured upfront to include a tail period that extends well past practical completion, sometimes twelve to eighteen months. The facility morphs from construction debt into stock debt at completion without a separate refinance event. The lender is, in effect, doing both jobs in one facility. This is more common with non bank specialist lenders and private credit than with the major banks.
Completion bridging
A short term bridging facility that covers the gap between when a construction lender wants to be paid out, typically at practical completion or shortly after, and when a longer term solution can be put in place. Often used when the developer has not finalised the residual stock refinance, or when planned settlements have been delayed. Pricing is higher and terms shorter than residual stock.
Presale shortfall or standby presale facility
A pre construction or in construction product, not an exit product, but worth distinguishing because it gets conflated with exit finance. A presale shortfall facility synthesises or guarantees presales to satisfy a construction lender’s presale hurdle, sometimes via a put option or standby commitment from a wholesale fund. It addresses the front end of the same problem, the timing mismatch between construction debt maturity and actual sales.
Investment loan or commercial property loan
The natural exit from residual stock finance, once the asset stabilises into a leased income producing portfolio. The pricing is the cheapest of the family, but the asset has to look more like a stabilised investment property than a sales portfolio to qualify.
A useful mental model is to place these products on a timeline. Presale shortfall sits before and during construction. Stretched senior covers construction and the early tail. Development exit refinances at practical completion. Residual stock takes you through selldown. Investment loans take over if the strategy shifts to hold.
The underlying problem, the construction loan to selldown timing gap
Most Australian senior construction loans contractually expire at practical completion or within a short tail period after it, typically three to twelve months. Sales rarely complete on that timetable for multi unit residential, particularly apartments. The selldown horizon for a fifty unit project is generally measured in years, not months, especially in the current market.
When a construction loan reaches its contractual expiry, several things happen in fairly quick succession. Line fees on undrawn portions begin to escalate. The facility moves to over limit or default rates if not extended. Personal guarantees that have been sitting quietly behind the facility become more material. Construction lenders, particularly major banks, become unwilling to extend except on substantially less attractive terms. The developer’s relationship with the lender, which has often required quarterly QS reports, valuation updates, and presale evidence, becomes more strained as the lender pushes for repayment.
This is the timing gap that exit finance exists to bridge. The economics behind it are straightforward. Construction debt is priced for construction risk, which is the highest risk in the development lifecycle. Once the building exists, that risk is retired. The lender on the completed stock is taking a different and lower risk, the risk that completed individual dwellings will not sell at forecast prices over the facility term. The natural pricing for that risk sits below construction debt and above stabilised investment debt.
Several macro factors are making this timing gap more acute through 2025 and 2026. Construction insolvencies have remained elevated, with ASIC reporting construction representing roughly a quarter of all corporate insolvencies and thousands of construction company failures annually. Residential construction costs sit substantially above pre COVID levels, making project budgets tight. Selldown horizons have stretched. ANZ Research has forecast modest softness in capital city housing prices through 2026 in inflation adjusted terms, which lengthens absorption and increases the risk that a developer cannot clear stock at original marketed prices.
On the buyer side, APRA’s November 2025 announcement of a debt to income cap on residential lending, effective 1 February 2026, applies only to ADIs and explicitly excludes new dwelling construction. The first order effect on construction lending is small. The second order effect on the buyer pool taking settlement of off the plan stock is more material, since investor buyers at higher DTIs face new constraints when arranging settlement finance.
The other side of the coin is the regulatory loosening that occurred at the start of 2025. APRA’s letter to ADIs of 13 February 2025 clarified that the previous interpretation of its 2017 commercial property lending guidance, which many banks had read as requiring 100 percent qualifying presales for residential development, was not what APRA intended. The practical effect has been slow. Major bank credit committees have remained conservative, and non bank lenders have continued to gain market share. The RBA’s October 2025 Financial Stability Review notes a slight easing in commercial real estate lending standards but flags that standards remain prudent and that registered financial corporations and non banks continued to grow market share through early 2025.
The result is that more developers are reaching practical completion with construction lenders pressing for payout, in a market with extended selldown horizons, with banks reluctant to extend, and with non bank and private credit lenders willing to take over the asset. Exit finance is the bridge across that gap.
Product mechanics in detail
LVR ranges
Loan to value ratios on residual stock facilities depend heavily on the lender category, the asset type, and the concentration of unsold stock in a single complex. The following ranges are indicative for the Australian market in 2026 and should be verified against current term sheets.
| Lender category | Typical LVR (% of as if complete value) | Notes |
|---|---|---|
| Major bank | 60 to 70 percent | Often only available as an extension or restructure of an existing relationship |
| Non bank specialist | 65 to 75 percent | Higher with guarantor or cross security |
| Private credit fund | 70 to 80 percent | Concentration discount applies at higher LVRs |
LVR is calculated on the as if complete valuation of the unsold stock, individual unit basis preferred to in one line bulk basis. A bulk in one line valuation typically applies a discount of fifteen to twenty five percent against individual unit values, so most developers and lenders prefer to use individual unit valuations with a release mechanism rather than a single bulk facility.
ICR and serviceability
Where units are leased during the selldown period, lenders typically require an interest cover ratio of approximately 1.2 to 1.5 times. ICR is calculated as net rental income divided by interest expense over the facility term. With short term rental yields in major capital cities frequently sitting at three to four percent and residual stock rates at nine to twelve percent, achieving ICR on a fully leased basis is often difficult, which is why many residual stock facilities are structured with capitalised rather than serviced interest.
Interest treatment
Two structures dominate. Capitalised interest, where unpaid interest is added to the loan balance each month until partial release events or final repayment, is common where units are held vacant for sale. Serviced interest, where interest is paid from project cash flow or sponsor contribution, is common where units are tenanted and producing rent. Some facilities allow a hybrid, with interest serviced to the extent of rental income and capitalised above that.
Release schedules and partial release
This is the mechanism that makes residual stock facilities work. Each unit in the facility is allocated a portion of the total loan, typically based on its as if complete value. When a unit settles, a release price is paid to the lender. The release price is almost always set at greater than 100 percent of the allocated debt, often 105 to 120 percent, with the surplus applied to reduce the loan against the remaining units. This deleveraging mechanism is how the lender manages concentration risk as the portfolio shrinks. From a developer’s perspective, the partial release schedule must be modelled carefully, because the gross sale price needed to clear allocated debt and release the title is materially higher than the simple LVR percentage would suggest.
Term and renewal
Six to twenty four months interest only is the dominant structure. Thirty six month terms are available with some lenders for build to hold strategies but are uncommon. Renewal at the end of the initial term is not guaranteed and depends on selldown progress and market conditions at the time. Lenders typically reassess valuation and LVR at renewal, which can produce a step up in pricing if the market has softened.
Security and personal guarantees
A residual stock facility is almost always secured by a first ranking mortgage over the unsold stock, a general security agreement over the project SPV, and personal guarantees from the principals. Cross collateralisation across multiple projects is common with the same lender. Limited recourse structures, where the personal guarantee is capped at a stated dollar amount or restricted to specific recourse events, are sometimes negotiable with private credit at higher LVRs, but full recourse is the default. Developers running multiple projects with one lender should pay close attention to the cross default and cross collateralisation language.
Stretched senior at completion as an alternative
Rather than refinancing at practical completion into a separate residual stock facility, some developers structure the original senior construction facility to include a long enough tail to cover selldown. This is more common with non bank lenders than banks. The benefit is no refinance event, no second set of establishment fees, no second valuation, and no risk that a residual stock facility is not available when needed. The drawback is that the construction rate, which is higher than residual stock rates, applies for the entire tail period, so the all in cost can be higher unless the tail is short.
The lender landscape
The Australian exit finance market has three broad lender categories, and the practical credit appetite of each has shifted materially over the last five years.
Major banks
The big four and the regional ADIs do residual stock lending, but typically only as an extension of an existing customer relationship or where the project is in their core book. Pricing is the cheapest of the three categories, with current indicative residual stock rates for the major banks roughly seven to nine percent depending on LVR and asset type. APRA’s commercial property lending framework, updated and clarified in February 2025, softened the previous practical requirement for 100 percent qualifying presales in residential development, but bank credit committees have remained cautious. The RBA October 2025 Financial Stability Review reports that the major banks’ commercial real estate exposure represents around six percent of total assets, well below pre 2017 levels.
For developers, the practical implication is that approaching the majors for stand alone residual stock at the point of construction loan expiry is generally too late. Bank appetite for residual stock typically arises through existing relationships, often where the residual stock is being held as an investment portfolio rather than for sale.
Non bank specialist lenders
The middle of the market. Non bank specialist development lenders run the bulk of the Australian residual stock loan book in the under twenty million dollar facility size band. Pricing is typically nine to twelve percent, with LVRs to seventy five percent and reasonably standardised documentation. These lenders are funded by warehouse facilities, securitisation, and increasingly by partnerships with wholesale and offshore capital. The RBA’s October 2025 FSR notes that registered financial corporations continued to grow their market share of business lending through 2025.
Private credit funds
The fastest growing segment. Private credit funds in Australian property have expanded rapidly over the last five years. Industry estimates put the total private credit AUM in Australia at well over two hundred billion dollars, with the property focused subset growing at roughly fifteen to twenty percent per annum. Knight Frank’s Horizon report estimates the Australian commercial real estate private credit market at tens of billions of dollars, with core strategies targeting returns of around three to six and a half percent over the cash rate and higher risk strategies targeting all in returns of ten to fifteen percent.
For residual stock at higher LVRs, larger facility sizes, or more complex situations including mixed use, partially leased, or sponsor stress scenarios, private credit is often the only practical source of capital. Pricing reflects this, with current indicative rates in the eleven to fourteen percent range and establishment fees of one to two percent of facility size.
Rate ranges as at publication
The following table is indicative for residential residual stock facilities in major Australian capital cities. Rates float against BBSY or a similar reference and will move with the cash rate. Verify against live term sheets.
| Lender category | Indicative rate range (p.a.) | Typical LVR | Establishment fee |
|---|---|---|---|
| Major bank | 7 to 9 percent | 60 to 70 percent | 0.5 to 1 percent |
| Non bank specialist | 8.5 to 11 percent | 65 to 75 percent | 1 to 1.5 percent |
| Private credit | 10 to 14 percent | 70 to 80 percent | 1.5 to 2.5 percent |
Indirect effects of APRA’s 2026 DTI cap
APRA’s debt to income cap of six times income, effective 1 February 2026 and limited to twenty percent of new ADI residential lending, does not apply to development lending. It applies to ADI mortgage lending to individuals. The relevance for residual stock is second order. Some of the off the plan buyers who will be taking settlement of completed stock in 2026 and 2027 will be marginal under the new framework. This may extend settlement timelines, increase settlement failure rates at the buyer level, and stretch developer selldown horizons. A developer modelling exit finance through 2026 should factor in a modestly higher settlement default rate and longer settlement timing than was typical in 2023 and 2024.
Qualification criteria for sophisticated borrowers
Asset type
Residential apartments and townhouses are the core market. Strata titled stock is strongly preferred. Detached houses on individual titles are straightforward but lower volume in this market. Commercial residual stock, retail and office strata, is considered case by case and often requires a rent roll review and tenant covenant analysis. Mixed use buildings are workable but typically require either a single facility covering both the residential strata stock and the commercial GLA, or two parallel facilities with cross collateralisation.
Location
Capital city and major regional metro stock is strongly preferred. Inner ring and middle ring suburbs of Sydney, Melbourne, Brisbane, Perth, and Adelaide attract the widest range of lenders. Outer ring metro and regional stock is workable but at lower LVR and higher rates. Stock in single industry regional towns is generally outside non bank and private credit appetite at any reasonable LVR.
Sponsor track record
Most lenders look for two or more completed projects of similar scale. First time developers are typically not eligible for residual stock at competitive terms, although they may access it via a more experienced equity partner or development manager. Sponsor balance sheet and personal guarantee capacity are reviewed alongside project metrics.
Concentration
Concentration in a single complex is the most important credit factor after LVR. A facility against twenty unsold units in a sixty unit complex looks very different from a facility against fifty unsold units in a fifty two unit complex. In the second case, the lender effectively owns the absorption risk for the whole building. Release pricing and LVR are adjusted accordingly, and some lenders simply will not lend on more than a stated percentage of the units in a single complex.
Documentation
The standard documentation set includes the practical completion certificate, the occupation certificate, the registered strata plan, individual contracts of sale for any exchanged but unsettled units, the final QS report, the marketing and selldown strategy, a rent roll if any units are leased, recent comparable sales evidence, and a current as if complete individual unit valuation. Personal financial statements and sponsor credit reports complete the package.
Valuation methodology
As if complete on an individual unit basis is the dominant approach. Lenders typically appoint valuers from a panel and the valuation is undertaken at the lender’s expense but at the borrower’s cost. Bulk in one line valuations are sometimes used for stress testing, particularly where concentration is high, and typically come in at fifteen to twenty five percent below the aggregate individual unit value. Developers should review both bases as part of feasibility modelling.
Costs and economics, a total cost of capital framework
Headline interest rate is the wrong number to focus on. The right number is the all in cost of capital over the facility life, accounting for establishment fees, line fees, discharge and release fees, valuation costs, legal costs, and the opportunity cost of the time the capital is locked up. The total cost calculation should also include exit fees, which on some private credit facilities can be one to two percent of facility size and materially change the comparison.
A more useful framing for a sophisticated developer is the comparison between the practical exit alternatives at practical completion. There are typically three.
Option A, extend the construction facility
The existing construction lender agrees to a six to twelve month tail extension. An extension fee of 0.5 to 1 percent of the facility is typical. The construction rate, often eleven to fourteen percent for non bank construction debt, continues to apply through the extension period. The benefit is no refinance event, no new valuation, no new legal cost. The drawback is that the construction rate is higher than the residual stock rate would be, so the developer is paying construction risk pricing on what is now stock risk.
Option B, refinance into residual stock
A new residual stock facility takes out the construction lender. Establishment costs of one to two percent of facility, plus valuation, legal, and discharge fees. The new rate is typically two to four percentage points below the construction rate. The benefit is the lower rate. The drawback is the upfront transaction cost and the timing risk, since the refinance needs to be in place before the construction lender expires.
Option C, accept a discount to clear
Reprice unsold stock at a five to fifteen percent discount to clear the inventory within the original construction loan tail. The discount is real money, but so is the interest saved by not extending or refinancing. For small unsold portions, this is often the most efficient option. For larger unsold portions, the discount required to actually clear the stock typically exceeds the interest cost of refinancing.
A worked comparison for an eighteen month residual selldown on a thirty unit unsold portion with a twenty million dollar construction balance might look like this.
| Option | All in cost over 18 months | Notes |
|---|---|---|
| Extend construction loan at 12 percent capitalised, 0.75 percent extension fee | Approximately 3.6 million dollars in interest plus 150,000 dollar fee, total around 3.75 million | Single lender, no transaction cost |
| Refinance to residual stock at 10 percent capitalised, 1.5 percent establishment | Approximately 3 million dollars in interest plus 300,000 dollar establishment plus 100,000 dollar valuation and legal, total around 3.4 million | Lower rate, higher upfront |
| Discount remaining stock by 7 percent to clear in 90 days, hold construction loan for 3 months | Approximately 600,000 dollars in interest plus 1.4 million in discounts (7 percent of 20 million), total around 2 million but realised gross revenue is lower by 1.4 million | Faster, lower carry, more revenue impact |
The right answer depends on the underlying selldown velocity. If the developer believes the units can actually be sold at marketed prices over twelve to fifteen months, refinancing into residual stock typically wins. If selldown velocity is highly uncertain, discounting is sometimes more rational. If the construction lender is willing to extend at near residual stock pricing, that may be the simplest path. Modelling each option on a project specific basis is the only way to make the decision robustly.
Feasibility modelling implications
This is where exit finance separates the sophisticated developer from everyone else. Most feasibility models treat selldown as a deterministic single line item, a stated number of months at a stated price. Real selldown is a distribution. Treating it as such, and modelling the consequent interest cost in the exit phase, is what gives a developer a realistic view of project IRR.
Selldown as a distribution, not a point estimate
A more useful approach is to model selldown velocity as a triangular or PERT distribution with three scenarios, optimistic, base, and pessimistic, anchored against comparable absorption data from similar projects in the same micro market. A sixty unit Melbourne apartment project might assume an optimistic six unit per month absorption, a base four unit per month absorption, and a pessimistic two unit per month absorption. Each scenario produces a different selldown timeline, a different residual stock facility size, and a different all in finance cost. The probability weighted IRR across the three scenarios is a more honest project return than the deterministic central case.
Feasly’s sensitivity analysis capability is designed exactly for this kind of multi variable scenario testing.
The exit phase funding stack
A complete feasibility should show two funding stacks, one for the construction phase and one for the exit phase. The exit stack typically looks like the residual stock facility at sixty five to seventy five percent of as if complete value, plus retained equity, plus any deferred mezzanine or land vendor finance that has not yet been paid out. Visualising the two stacks at different points in the project lifecycle clarifies how much capital is at risk at each stage and how the risk profile shifts at practical completion.
IRR sensitivity to selldown velocity
The single most useful output is an IRR sensitivity table that varies the post practical completion selldown duration. The structure is straightforward.
| Selldown duration | Indicative project IRR delta vs base case |
|---|---|
| 6 months | Plus 150 to 250 basis points |
| 12 months | Base case |
| 18 months | Minus 200 to 350 basis points |
| 24 months | Minus 400 to 700 basis points |
| 36 months | Minus 700 to 1200 basis points |
The exact numbers depend on project specific leverage, rate, and margin profile, but the pattern is consistent. Every additional month of selldown beyond the base case compounds finance costs, reduces partial release proceeds available for distribution, and pushes equity returns down.
Modelling the residual stock refinance event
The refinance event itself should be modelled as a discrete capital event. The construction loan balance is repaid, with cash to or from the project depending on whether settled unit proceeds plus the new facility cover the construction balance. The new facility has its own establishment fee, valuation cost, legal cost, and ongoing line fee. The interest rate steps down from the construction rate to the stock rate. The partial release mechanism then operates, with each settlement triggering a stated release payment.
For developers using Feasly’s property development finance modelling, this can be set up as a second facility activating at the practical completion milestone, with the first facility extinguished at the same point.
Connecting back to residual land value
Exit finance cost feeds back into residual land value calculations on subsequent acquisitions. A developer underwriting a new site with a similar product type and likely selldown profile should use a blended cost of debt that weights construction phase rate by build months and exit phase rate by expected selldown months. Using the construction rate for the whole project life overstates finance cost. Using the residual stock rate for the whole project life understates it. A blended figure produces a more accurate RLV and a more defensible offer price.
Build to sell versus build to hold
The exit phase is also where the build to sell versus build to hold decision is sometimes revisited. A developer who has built for sale but is facing a slow market may convert part of the residual stock into a build to hold investment portfolio, using an investment loan rather than residual stock as the long term financing. The relevant feasibility comparison is the present value of selldown at current market prices versus the present value of rental income plus deferred sale proceeds.
There is a less obvious financial consequence of this decision that catches developers out, and it is worth flagging explicitly. The GST margin scheme treatment that may have been applied to early settled units in the project typically assumes the stock was acquired and held for the purpose of taxable supply, that is, sale as new residential premises. Switching unsold stock from a sale strategy to a long term hold can change the GST character of the supply. If units are leased as residential premises for an extended period before any subsequent sale, they may lose their new residential premises status, which could affect the GST treatment of the eventual sale and may also trigger increasing adjustments under Division 129 of the GST Act in relation to input tax credits previously claimed on construction and acquisition costs. The interaction with margin already retained on earlier sales in the same project is complex, and the practical effect can be a material future tax liability that was not contemplated when the original feasibility was built.
This is firmly in the territory where developers should be talking to their tax advisor and legal counsel before committing to a hold strategy, not after. The numbers can shift project economics meaningfully, and the rules around adjustment periods, intention at acquisition, and the new residential premises status have enough nuance that generic guidance is unsafe. Modelling a hold pivot should include a placeholder for potential GST adjustment cost, with formal advice from a property tax specialist who can review the actual facts of the project and the prior margin scheme positions taken.
Three worked examples
The following examples use realistic Australian metrics for the relevant cities. All numbers are illustrative.
Example 1, inner Sydney apartment project, 50 units
A fifty unit two bedroom apartment project in middle ring Sydney completes in mid 2026. Gross realisation value averages 900,000 dollars per unit, total GRV of 45 million dollars. The construction facility was structured at 30 million dollars senior, 67 percent LTC, with a non bank specialist lender at 10.5 percent capitalised interest, plus a 5 million dollar mezzanine tranche from a private credit fund at 16 percent. The construction loan tail is six months past practical completion.
At practical completion, twenty units are exchanged with ten percent deposits, settlement timed for sixty days after the registration of the strata plan. Thirty units are unsold. The construction balance has grown with capitalised interest to 31.8 million dollars. The mezzanine has grown to 5.5 million dollars.
The developer faces a choice. The construction lender will extend for six more months at 11 percent plus a 0.75 percent extension fee, total cost approximately 1.75 million dollars in interest plus 240,000 dollars in extension fees over six months on a 32 million dollar facility. Or the developer can refinance the unsold stock into a residual stock facility while using settlement proceeds from the exchanged twenty units to pay down the senior.
The refinance pathway looks like this. The twenty exchanged units settle, producing net proceeds of approximately 17.1 million dollars (95 percent of 18 million gross, after agent commission and marketing). The thirty unsold units have an as if complete individual valuation of 27 million dollars. A residual stock facility at 65 percent LVR provides 17.55 million dollars at 10 percent capitalised interest, eighteen month term, 1.5 percent establishment fee. The mezzanine is repaid in full at 5.5 million dollars from the combined settlement proceeds and residual stock drawdown. The construction senior of 31.8 million dollars is extinguished using 17.1 million dollars in settlement proceeds plus 14.7 million dollars from the residual stock drawdown. The remaining 2.85 million dollars from the residual stock drawdown plus retained equity goes to working capital or the next site.
The selldown sensitivity then drives the all in finance cost.
| Selldown velocity | Months to clear 30 units | Total residual stock interest | Project IRR impact |
|---|---|---|---|
| 4 units per month | 7.5 | Approximately 950,000 dollars | Near base case |
| 2.5 units per month | 12 | Approximately 1.6 million dollars | Minus 150 basis points |
| 1.5 units per month | 20 | Approximately 2.7 million dollars | Minus 350 basis points |
Example 2, Melbourne townhouse project, 12 units
A twelve unit townhouse project in middle ring Melbourne completes in early 2026. GRV averages 1.1 million dollars per townhouse, total GRV of 13.2 million dollars. The construction facility was 8.5 million dollars at 11 percent capitalised. At practical completion, six townhouses are exchanged and six remain unsold. The construction balance is 8.7 million dollars.
Three options.
Option A, extend the construction loan six months at 11.5 percent capitalised with a 0.75 percent extension fee. Interest cost approximately 500,000 dollars plus 65,000 dollar fee, total 565,000 dollars.
Option B, refinance the six unsold townhouses into a residual stock facility. As if complete value 6.6 million dollars, 65 percent LVR equals 4.29 million dollars at 10 percent capitalised, twelve month term, 1.5 percent establishment fee. Combined with settlement proceeds from the six exchanged units (5.6 million dollars net), the construction loan is paid out. Twelve month interest cost on residual stock approximately 430,000 dollars plus 65,000 dollar establishment plus 30,000 dollar valuation and legal, total 525,000 dollars.
Option C, discount the six unsold townhouses by seven percent to clear within ninety days. Discount value approximately 460,000 dollars across six units. Three months of construction interest approximately 240,000 dollars. Total cost 700,000 dollars but realised revenue is 460,000 dollars lower.
For this project, the break even point is roughly four months of selldown. Below that, accepting the discount is cheapest in net cost terms. Above that, the residual stock refinance is the most efficient. The construction loan extension is the worst option in this scenario, because the higher construction rate applies to the whole 8.7 million dollar balance rather than to just the residual 4.29 million dollars.
Example 3, Brisbane mixed use, 80 apartments plus retail
A mixed use project in inner Brisbane completes with eighty residential apartments and roughly 800 square metres of ground floor retail GLA. Total GRV is 80 million dollars, of which approximately 75 million dollars is residential and 5 million dollars is the capitalised value of the retail income.
The construction facility was 56 million dollars senior plus 8 million dollar mezzanine. At practical completion, fifty apartments are exchanged, thirty apartments remain unsold, and two of three retail tenancies are leased on three to five year terms.
The exit structure splits. The retail component, which is producing stabilised income, is refinanced into an investment loan at 70 percent LVR on 5 million dollars, a 3.5 million dollar facility at 7.5 percent serviced interest. The thirty unsold apartments, as if complete value 28.5 million dollars, are refinanced into a residual stock facility at 70 percent LVR, a 19.95 million dollar facility at 10.5 percent capitalised, eighteen months. The settlement proceeds from the fifty exchanged apartments, approximately 45 million dollars net, plus the two new facilities of 23.45 million dollars, fund the payout of the construction senior at 58 million dollars and the mezzanine at 8.4 million dollars. Surplus approximately 2 million dollars to working capital.
The mixed use case illustrates how exit finance is often split across two or more facilities to match the underlying asset risk profile. The retail component, which would have been awkward to hold under a residential residual stock structure, gets a more natural investment loan home. The residential remains in the right product.
Risks and watch outs
Refinance risk
The single biggest risk in the exit phase. If the residual stock refinance is not in place when the construction loan expires, the developer faces default rates, over limit fees, or worse. Engaging non bank or private credit lenders sixty to ninety days before practical completion is standard practice. Indicative terms should be in hand at least thirty days before the construction loan expiry.
Market risk during selldown
Extended hold periods carry valuation risk. If the market softens over the selldown period, the residual stock facility may be tested at renewal and the LVR may breach, requiring a sponsor equity injection or a price adjustment on remaining units. Modelling selldown over a range of market scenarios is more useful than a single base case.
Interest rate risk
Most non bank exit facilities are floating against BBSY or a similar reference rate. Cash rate movements flow through to the all in interest cost. Hedging via interest rate swaps is uncommon at typical residual stock facility sizes and maturities, but interest rate exposure should be explicitly modelled.
Concentration and partial release pricing
Where a developer holds a high concentration of unsold stock in a single complex, lenders adjust by lowering LVR, increasing the release price percentage, or capping the facility size. The economic effect is that the developer recovers less surplus at each settlement and the deleveraging happens faster, which may be desirable for the lender but can squeeze project liquidity.
Cross collateralisation
When a developer has multiple facilities with the same lender, cross collateralisation and cross default language can mean that a problem on one project triggers reviews and demands on the others. Splitting facilities across funders isolates the risk but increases relationship management overhead and may reduce overall pricing efficiency.
Personal guarantee exposure
Personal guarantees on residual stock facilities are typically full, joint and several across the principals of the project SPV. They generally survive partial paydown and remain in place until the facility is fully extinguished. Negotiating capped or time limited guarantees is sometimes possible with private credit at higher LVRs but is the exception.
Lender retreat scenarios
In stressed market conditions, even committed lenders may pull back on renewal terms. The 2020 COVID period saw several non bank development lenders close to new business for a period of months. Building relationships with two or three potential exit lenders before practical completion provides optionality if one lender becomes unavailable.
GST and tax position on a hold pivot
A risk that often sits outside the financing conversation but materially affects exit phase economics is the GST treatment of stock that shifts from a sale strategy to a hold strategy. Where the margin scheme has been applied to earlier sales in the project and the developer subsequently decides to retain unsold stock as a leased rental portfolio, the change of intention can interact with Division 129 of the GST Act and the new residential premises rules in ways that produce future tax liabilities not reflected in the original feasibility. The detail is covered in the build to sell versus build to hold discussion above. The watch out for risk register purposes is simply to flag any contemplated hold pivot to the project tax advisor early, before the strategy is locked in or before any further sales settle on the original basis.
State by state considerations
New South Wales
NSW has the most developed sunset clause regime in Australia. Under the Conveyancing Amendment (Sunset Clauses) Act 2015 and the Conveyancing Legislation (Amendment) Act 2018, a vendor of an off the plan residential lot may only rescind under a sunset clause with the written consent of the purchaser or with an order of the Supreme Court. The vendor must give the purchaser at least twenty eight days written notice of the proposed rescission. The 2018 amendments expanded the regime to include rescission events triggered by occupation certificate timing, not just registration of the strata plan. The disclosure regime introduced from 1 December 2019 imposes additional vendor disclosure obligations.
The practical implication for exit finance is that NSW developers cannot easily reprice unsold contracts by allowing them to lapse under sunset clauses, which means the selldown at marketed prices assumption is more rigid in NSW than in some other states. A developer who has exchanged a substantial portion of the project at prices that no longer reflect the market faces limited flexibility to reset prices for those exchanged contracts.
Victoria
The Sale of Land Amendment Act 2019, which inserted sections 10A to 10F into the Sale of Land Act 1962, brought Victoria’s sunset clause regime broadly into line with NSW. From 1 March 2020, all sunset clauses in residential off the plan contracts must include a prescribed statement. Vendors must obtain written purchaser consent or Supreme Court approval to rescind. Statutory penalties for non compliance can reach into the hundreds of thousands of dollars for a body corporate.
Queensland, Western Australia, South Australia, and the rest
Other states and territories have less restrictive sunset regimes, with contractual sunset dates generally enforceable subject to general contract law principles. Queensland developers retain more flexibility to allow sunset dates to lapse and resell at adjusted prices, although the practical realities of buyer disputes and reputational considerations apply.
Settlement processes
State variations in cooling off periods, default notice periods, and resale timeframes affect how quickly a developer can re list a defaulted settlement and how long the residual stock facility needs to run. These differences are typically not material enough to change the exit finance product selection, but they do affect the modelled selldown timing.
Glossary
As if complete value: valuation basis assuming all building works, certifications, and strata title registration are in place. The standard basis for residual stock facility LVR calculations.
DSCR, Debt Service Coverage Ratio: net cashflow available to service debt divided by interest plus principal repayments. Typically above 1.2 times for residual stock facilities serviced from rental income.
Establishment fee: upfront fee payable to the lender on facility settlement, typically 1 to 2.5 percent of facility size for residual stock.
GRV, Gross Realisation Value: total expected sale revenue from all units in a development.
ICR, Interest Cover Ratio: net income divided by interest expense. Typically 1.2 to 1.5 times for residual stock with leased units.
LTC, Loan to Cost: facility size divided by total development cost.
LVR, Loan to Value Ratio: facility size divided by as if complete value for residual stock, or current market value for investment loans.
Mezzanine: subordinated debt tranche ranking behind senior debt but ahead of equity, with higher coupon to compensate for the position.
Partial release: payment of an allocated portion of the loan when a unit settles, releasing that title from the mortgage and reducing the loan balance.
Practical completion: the contractual milestone in a construction contract where the works are sufficiently complete to allow occupation and use, typically certified by the superintendent or principal certifying authority.
Release price: the dollar amount required to be paid to the lender for a specific unit to be released from the mortgage. Almost always greater than 100 percent of allocated debt.
Stock loan, take out loan: market synonyms for residual stock loan in Australia.
Stretched senior: senior facility structured at a higher LVR or LTC than conventional senior debt, sometimes effectively combining the senior and mezzanine layers.
Sunset clause: contractual provision in an off the plan contract allowing rescission if a specified event, typically registration of the strata plan, has not occurred by a stated date. Tightly regulated in NSW and Victoria.
Tail period, run off period: the contractual period during which a construction facility remains available past practical completion, typically three to twelve months.
Final thoughts
The exit phase is the most under modelled and under discussed part of an Australian development. The construction lender pressures developers to deliver presales, manage costs, and reach practical completion. Most of the public discussion of property finance happens in the same construction phase frame. By the time developers are dealing with the realities of selldown velocity, partial release mechanics, refinance timing, and the choice between extending, refinancing, or discounting, they are often working from less complete information than they had at the start of the project.
The case for treating exit finance as a first class element of project structuring is straightforward. The decisions made at and around practical completion materially affect realised IRR. Modelling the selldown phase with the same rigour as the construction phase, including selldown velocity as a distribution rather than a point estimate, the exit phase funding stack, the IRR sensitivity to selldown duration, and the comparison between extending, refinancing, and discounting, is what allows a developer to make those decisions well.
For developers using Feasly’s modelling capabilities, the exit phase can be configured as a discrete second financing event at practical completion, with the construction facility extinguished and the residual stock facility activated, and selldown velocity stress tested across scenarios. The output is a more honest project IRR and a more defensible underwriting basis for the next acquisition.
The regulatory and market backdrop in 2026 makes this discipline more important, not less. The major banks remain conservative on stand alone residual stock despite APRA’s clarification. Non bank and private credit lenders have stepped into the space, with deeper appetite but higher pricing. Selldown horizons are stretched. Settlement risk on off the plan stock is elevated. The developers who model the exit phase carefully and engage with potential exit lenders well before practical completion are the ones who land closest to their forecast returns.
Feasibility software like Feasly is built to handle these kinds of multi stage financing structures, with construction debt rolling into residual stock at practical completion, sensitivity tables across selldown scenarios, and IRR outputs that reflect the actual financial structure of the deal rather than a single line capitalised assumption.
Rates, fees, and product structures referenced in this guide are indicative as at the publication date and will move with market conditions. Verify against current term sheets before making financing decisions. This guide is general information only and is not legal, tax, or financial advice.