The NZ Property Funding Gap: Why Developers Are Turning to Private Credit

A Structural Shift in Property Lending

For decades, New Zealand's major banks have been the dominant source of property development finance. Over the last several years, that picture has changed materially. Tighter capital requirements, stricter lending caps on high-LVR development exposures, and a more conservative appetite for construction risk have led the banks to pull back from segments of the development market they previously funded comfortably.

The result is a visible funding gap — viable projects with strong fundamentals that no longer fit neatly within bank credit appetite. This is particularly the case for mid-tier residential and mixed-use developments, tourism assets, and specialised commercial property.

Why Private Credit Is Filling the Space

Private credit funds and non-bank lenders operate under a different mandate. Because they raise capital from wholesale investors rather than retail depositors, they can take a more bespoke view of security, structuring, and risk. The characteristics that make a project unattractive to a bank — a non-standard asset, a phased drawdown schedule, or a sponsor without an established banking track record — are often exactly the situations where private credit can add value.

In exchange, private credit providers typically price at a premium to senior bank debt and sit lower in repayment priority, reflecting the additional risk. For the borrower, the trade-off is access to capital on terms a bank simply will not offer, and speed of decision-making that institutional lenders struggle to match.

What This Means for Sponsors

For developers and project sponsors, the rise of private credit is not a replacement for bank debt — it is a complement. The most resilient capital stacks now routinely combine:

• Senior debt from a bank or non-bank first-rank lender
• Mezzanine finance from a private credit fund or wholesale investor
• Sponsor equity and, increasingly, co-investment from sophisticated investors

Structuring these layers correctly — managing inter-creditor priority, security, and drawdown timing — is where most of the value (and most of the risk) sits. Fox Partnerships works with sponsors to build and place these stacks, drawing on our Capital Connect private credit platform and wholesale lender network.

The Outlook

The structural drivers behind bank retraction from property development are unlikely to reverse quickly. Regulatory capital settings and a more cautious construction-risk appetite suggest the funding gap will persist. For well-prepared sponsors, that represents an opportunity to access flexible, relationship-driven capital — provided the project is structured and positioned correctly from the outset.

Fox Partnerships does not provide financial or legal advice. This article is general commentary only and not an offer of securities or finance.