Restructuring Property Debt: From Bank Recall to a Refinanced Capital Stack

Background

A mid-tier New Zealand developer was 40% through construction of a 48-unit residential project when its incumbent bank conducted a portfolio-wide credit review. The bank's revised appetite led to a request to reduce exposure on the facility, despite the project performing to plan.

The sponsor faced a familiar but serious problem: a performing project at risk not from the project itself, but from a change in lender appetite. Without a refinancing solution, drawdowns would stall mid-construction.

The Challenge

The existing facility sat at approximately 62% LVR against the gross realisation value, with presales covering a comfortable share of the debt. On fundamentals, the project was sound. The constraint was structural — the senior lender wanted out, and the sponsor needed replacement capital without injecting material additional equity at a stage of the build.

The Structuring Approach

Fox Partnerships worked with the sponsor to rebuild the capital stack in three coordinated layers:

1. Replacement senior debt — placed with a non-bank first-rank lender at a modest premium to the previous bank facility, sized to the construction cost-to-complete
2. Mezzanine finance — introduced through the Capital Connect platform, second-ranking, covering the gap between new senior debt and the sponsor's available equity
3. Sponsor equity — retained at a level the sponsor could support, preserving their capacity for a subsequent project

The inter-creditor arrangements were structured to give the senior lender clean first-ranking security and the mezzanine lender appropriate cure rights, while allowing the sponsor to continue drawdowns against construction milestones without disruption.

Outcome

The refinancing was executed within the bank's review window, the project completed on its original programme, and the mezzanine facility was repaid on sale of the final units. The sponsor retained the equity headroom needed to proceed to their next development.

What the Case Illustrates

Several themes recur across the restructuring mandates we see:

• Lender appetite is a real risk — sound projects can be disrupted by changes in bank credit settings unrelated to project performance
• Speed of structuring matters — the window to replace funding mid-build is short
• A blended stack is often the answer — senior debt alone rarely fills the gap, and equity-heavy solutions are inefficient for the sponsor

This case is anonymised and illustrative, drawn from the types of restructuring situations Fox Partnerships advises on. Outcomes depend on individual circumstances.

Fox Partnerships does not provide financial or legal advice.