Land bank to construction: two-tranche structures and when to bridge
A project that runs purchase, then approval, then construction is three different risk profiles wearing one facility. Priced as a single blended loan, the land phase carries construction-phase pricing for months while nothing is being built, and the leverage available at each stage is set by the wrong test.
Splitting it into tranches is not a refinement. It is usually the difference between a fundable structure and an unfundable one.
The two-tranche structure
For a project spanning purchase → development approval → construction — typically 12 to 18 months — price the phases separately.
Tranche 1: land. An indicative shape on a land purchase around $2.7m: roughly 65% LVR inclusive of interest and fees, 1.00% establishment, at a land-appropriate rate, over a six-month term.
Tranche 2: construction. On development approval, it rolls into a construction tranche with establishment charged only on the increase, at a construction-appropriate rate, nil line fee, over a twelve-month term.
Two things make this work:
- Establishment on the increase only. Paying 1% again on the whole facility at roll-over is a real cost that a properly structured two-tranche facility avoids.
- Headroom before the risky phase. Keeping the land-phase LVR near 65% leaves room before the facility rolls into higher-risk construction. A land tranche pushed to its cap leaves nothing for the build to absorb.
Some lenders explicitly support settling the land purchase on one facility and applying for construction separately once ready to build, rather than one combined application. It is worth asking, rather than assuming a combined application is required.
When bridging is the right answer instead
Bridging a rezoning or approval hold
Present the lender with a clear staged pathway, not an open-ended hold: a bridging term now at a conservative LVR against an updated valuation, with named construction-capable lenders as the intended refinance exit once planning approval lands.
A worked shape: a property purchased at $490,000, currently valued at $800,000, with a gross first mortgage around $465,000 — 58% LVR, six-month term. Conservative leverage buys the lender comfort with an uncertain timeline.
Bridging a lapsed permit
A bridging second mortgage can cover a pre-construction gap caused by a lapsed permit being resubmitted — with the private lender’s explicit intent to roll into remaining as second mortgagee once the senior construction facility settles. Align that intent with both lenders upfront; discovering it at settlement is a two-week negotiation.
Bridging under incumbent-lender pressure
Where an incumbent is pushing hard for a refinance, treat that as a hard timeline driver in the model. Model the refinance off the assumed payout against an as-is value with anticipated uplift, split the resulting construction facility into civils and built-form components, and size the presale requirement to hit a specific LVR ceiling rather than a round percentage.
A short land bridge earmarked for early works
An equity release against as-is value, explicitly earmarked for consulting and early civil costs, is a workable staging structure ahead of a full construction facility — for example a six-month land loan with a three-month minimum at 70% LVR against a $2.0m as-is valuation, with the construction lender’s appetite lined up in parallel.
The acquisition facility that recovers your equity
This is the structural point most worth understanding.
An acquisition facility sized on as-is value, which later rolls into a construction facility sized on uplifted GRV once a permit lands, lets a sponsor recover their initial equity contribution rather than having it locked in for the whole project.
An indicative structure on a roughly 27-lot subdivision without a permit yet: a 70–75% LVR, six-month acquisition facility with sponsor equity around $980,000 on a $3.9m purchase, transitioning into an 18-month total facility — six months acquisition plus fifteen months build — once approvals landed.
Several lenders build their product suite around exactly this continuity: acquire a pre-development site with capitalised interest (preserving liquidity through the approval period), refinance into development finance once plans, permits and an as-if-complete valuation exist, then roll into residual stock to sell down — with sale proceeds funding the next acquisition.
Where construction documentation is not ready at or shortly after settlement, ask whether the facility can pivot to a site-acquisition product rather than failing the construction test.
Contract terms that protect a staged purchase
When buying land ahead of subdivision title registration, tie settlement to a notice period after registration, not a fixed calendar date. A structure that works:
- Settlement within 30 days of the plan of subdivision registering
- Vendor gives 60 days’ indicative notice of expected registration
- A 15-month sunset clause from contract execution
- A 30-day due diligence period from contract receipt, to confirm the intended land use is acceptable to the planning authority
A fixed settlement date on an unregistered plan transfers registration risk to the buyer for no consideration.
What sets your land LVR
On vacant, development-adjacent land, achievable LVR turns on the valuer’s highest and best use finding: where redevelopment is found to be the highest and best use, land lending is commonly capped around 50%; where the valuer notes a viable alternative such as holding as an investment, the same lender can reach around 65%.
Clarify the valuation instruction basis with the lender before ordering. And note that commercial vacant land is capped materially lower — commonly around 50% — so model the land-only draw separately from the eventual construction LVR.
Before you commit to a staged structure
- Confirm what evidence the construction lender will need at roll-over: permit, contract, building permit, QS report, as-if-complete valuation.
- Confirm establishment is charged on the increase, not the whole facility.
- Model the land tranche’s exit explicitly — land approval is not a commitment to fund the build.
- Check whether the borrowing entity requirement differs between phases; development facilities commonly require a company or trust borrower, with individuals only able to guarantee.
- Build the approval timeline into the land tranche term with real buffer, not a best case.
General information only. It is not credit assistance, financial product advice, or an offer of finance, and it does not take account of your objectives, financial situation or needs. Structures and figures are indicative, de-identified observations over 2024–2026.