“We don’t write pari passu construction loans. Yet,” the state head at a $5bn private credit firm told me recently during a frank risk discussion.

That final word matters.

It signals where the market is heading: lenders increasingly accepting less completion certainty to maintain margins, while enabling developers to preserve equity and lift EIRR.

In my view, this is stage 3 of Australia’s private-credit evolution.

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𝗧𝗵𝗿𝗲𝗲 𝘀𝘁𝗮𝗴𝗲𝘀 𝗼𝗳 𝗽𝗿𝗶𝘃𝗮𝘁𝗲 𝗰𝗿𝗲𝗱𝗶𝘁
Between 2015 and 2025, Australian CRE private credit increased roughly seven-fold to $92bn, according to Alvarez & Marsal.

That growth was driven by:

 • record low interest rates
 • capital rotating away from venture capital and private equity
 • domestic and offshore superannuation money entering private credit

𝗦𝘁𝗮𝗴𝗲 𝟭: 𝗠𝗼𝗿𝗲 𝗿𝗶𝘀𝗸 (2015-2021)
Non-banks initially competed with banks by offering higher LVRs and lower presale hurdles, taking share as the majors retreated from CRE lending.

Margins and line fees on construction debt were robust at roughly 3.25–3.75% pa, delivering strong risk-adjusted returns.

𝗦𝘁𝗮𝗴𝗲 𝟮: 𝗟𝗲𝘀𝘀 𝗺𝗮𝗿𝗴𝗶𝗻 (2022-2025)
As capital flooded into private credit, non-banks had to compete with each other. Then banks began a sustained push to win market share back.

Non-bank margins fell into the mid-2s, and in some cases for larger, stronger deals to below 2.00% pa.

𝗦𝘁𝗮𝗴𝗲 𝟯: 𝗟𝗲𝘀𝘀 𝗰𝗲𝗿𝘁𝗮𝗶𝗻𝘁𝘆 (2025+)
Lenders are now trying to stabilise margins by giving developers more equity flexibility through pari passu construction loans.

Traditionally, developers contribute 100% of their equity upfront, and debt then funds the project to completion.

Pari passu loans allow developers to contribute only 60–80% of equity upfront, with the balance injected progressively during construction.

That materially improves developer EIRR.

But it also means underwriting is shifting from “has the equity gone in?” to “will the sponsor still have both the capacity and willingness to put it in later?”

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𝗞𝗲𝘆 𝗶𝗻𝘀𝗶𝗴𝗵𝘁𝘀
 1. Over the last decade, non-banks first competed by taking more risk, then by accepting less margin.
 2. Some lenders are now trying to preserve margin by weakening traditional equity-first protections.
 3. Pari passu construction loans can materially improve EIRR for strong sponsors.
 4. However, failure to contribute monthly equity calls can be catastrophic for both developer and lender.
 5. Developers must be sure of future equity capacity before using these loans.

𝗗𝗲𝘃𝗲𝗹𝗼𝗽𝗲𝗿𝘀: would you accept pari passu funding to lift EIRR, or is equity certainty too important?

Developers wanting confidential benchmarking of current terms, or introductions to lenders and equity JV partners, are welcome to reach out. No exclusivity required.

#privatecredit #developmentfunding #construction