Mezzanine Finance Due Diligence Checklist for Property Developers
A lender-ready application pack
Mezzanine Finance Due Diligence Checklist for Property Developers
Mezzanine due diligence tests more than the value of the site. The lender must understand the full capital stack, verified cost to complete, project execution, security, repayment path and how the proposed junior debt interacts with the senior facility.
The practical answer
01
Start with a one-page transaction summary
A concise summary gives every reviewer the same version of the proposed transaction. It should reconcile with the supporting documents.
The summary should state
- Borrower, guarantors, project entity and ownership structure
- Property address, tenure, planning status and project description
- Senior lender, approved limit, amount drawn and remaining availability
- Developer equity contributed and any remaining equity requirement
- Mezzanine amount requested, use of funds and preferred timing
- Current total development cost, value basis and expected completion
- Primary exit, fallback exit and evidence supporting both
02
Capital stack and senior debt documents
Mezzanine funding is subordinate by design, so the lender needs a precise view of every claim ahead of and alongside it.
| Document or figure | What the lender tests | Common issue |
|---|---|---|
| Senior term sheet and facility | Additional-debt and security permissions | Consent requirements discovered late |
| Current debt and payout | Actual senior exposure | Accrued interest or fees omitted |
| Undrawn senior funds | Remaining funding capacity | Availability depends on conditions |
| Developer equity evidence | Real cash contribution and timing | Equity includes unsupported value uplift |
| Other creditors or charges | Competing claims | Builder or tax liabilities not reconciled |
| Proposed mezzanine schedule | Gross limit, net funds and peak debt | Retained interest reduces usable proceeds |
03
Project, cost and delivery evidence
The figures should be current and traceable to contracts, reports or a clearly explained assumption.
Feasibility
Current sources and uses, cost-to-complete, interest, contingency, GST and selling costs.
Valuation
Relevant value basis, date, assumptions, comparable evidence and any completion conditions.
Construction
Building contract, programme, progress claims, quantity-surveyor reports and builder status.
Approvals and sales
Planning and building approvals, presales, deposits, sunset dates and settlement conditions.
Quality-control the numbers
- Reconcile paid-to-date costs with bank statements or QS reporting.
- Explain variations, unpaid creditors and disputed claims.
- Show remaining contingency after known overruns.
- Separate contracted revenue from forecast sales.
- Provide an updated programme with critical dependencies.
04
Security, entities and compliance information
The lender and its advisers must understand who owns the asset, who borrows, who guarantees and whether any restriction affects enforcement or repayment.
Prepare the legal and entity file
- Current title search, registered interests and relevant leases
- Company extracts, trust deeds and beneficial ownership information
- Identification and source-of-funds documents requested for verification
- Existing guarantees, shareholder loans and related-party arrangements
- Insurance, planning, environmental or litigation matters relevant to the asset
- Proposed mortgage, general security, guarantees and any share security
- Independent legal advice requirements for borrowers and guarantors
05
Exit evidence and a realistic downside case
“Refinance on completion” is a strategy, not proof. Credit review is stronger when the assumptions can be checked and the fallback is practical.
Sale exit
Use current sales evidence, agent advice, presale status, selling costs and a realistic settlement timetable.
Refinance exit
Show indicative serviceability, expected value, target leverage and conversations with potential lenders.
Settlement exit
Test purchaser finance, deposit strength, sunset dates and settlement concentration.
Fallback plan
Show what changes if value falls, costs rise or the programme slips.
Evidence the repayment path
- Run expected, delayed and downside repayment dates.
- Include interest and extension costs through each date.
- Identify assets or equity available to cure a shortfall.
- Make the fallback executable before the facility expires.
Sources
Official guidance and related Zip Funding guides
The regulatory treatment of a facility depends on the borrower, purpose and structure. Obtain independent advice about the application of credit laws to the transaction.
Further reading
- Australian Government business.gov.au — applying for a business loan and preparing financial information.
- ASIC — responsible lending obligations; scope depends on the borrower and purpose.
- Zip Funding — mezzanine finance flagship guide.
- Zip Funding — intercreditor deeds in mezzanine finance.
Continue the mezzanine finance series
Related guides for the next decision
Intercreditor deeds and senior consent
Review payment priority, cure rights, standstill and enforcement control.
Completion and cost-to-complete gaps
Assess overruns, draw controls, contingency and the repayment critical path.
How developers bridge the funding gap
See how mezzanine capital can supplement senior debt and sponsor equity.
Frequently asked questions
Mezzanine due diligence FAQs
How current should the feasibility and QS report be?
They should reflect the present project position. If a report predates material variations, delays or claims, provide an updated report or a clear reconciliation.
Does an indicative valuation replace a formal valuation?
Usually not. A lender may use preliminary value evidence for an initial view but require an instructed valuation before approval or settlement.
Why does the lender need the senior facility documents?
They reveal consent restrictions, security, events of default, maturity, draw conditions and other terms that affect whether the mezzanine layer can operate.
What causes the most avoidable delay?
Inconsistent figures, missing senior consent, incomplete ownership documents and an exit based only on optimistic timing are common causes.
A clearer funding review
Submit one organised pack that explains the project, the gap and the exit.
Zip Funding can review the senior facility, developer contribution, verified project costs, proposed mezzanine layer and exit as one capital stack. Any structure remains subject to lender appetite, valuation, due diligence, legal documentation and approval.
General information only. This article is educational and does not constitute financial, legal, tax or credit advice. Mezzanine finance can involve subordinated security, higher costs, restrictive covenants, enforcement risk and loss of developer equity. Terms, leverage, security and timing vary. Obtain independent professional advice appropriate to the transaction.
