06/10/2026
Before committing capital, lenders need confidence in the property, the borrower and the proposed repayment strategy.
With greater scrutiny of commercial property lending, how that confidence is established matters. Due diligence allows lenders to examine the assumptions behind a deal and identify where risks may arise.
Here’s a closer look at what they assess, and what it means for borrowers seeking finance.
An experienced sponsor may strengthen a proposal, but the lender still needs confidence in the property and its market. Equally, a well-located asset does not remove questions about the borrower’s financial capacity.
The proposal needs to explain how those strengths fit together and how any weaknesses will be managed, with evidence to support the assumptions.
The presale requirement can influence when a project starts and how much equity the developer needs before construction can begin. A lower requirement may offer flexibility, but it needs to be considered alongside pricing, leverage and other funding conditions.
Greater oversight of lending practices is putting more focus on presale requirements. While some non-bank lenders will fund without presales, we’re seeing most seek 20–30% coverage. Major banks generally seek presales covering around 50% of debt.
For a buyer purchasing off the plan, much of the decision rests on confidence in a business and a building that has yet to be completed. An independent rating can provide another reference point when assessing who is behind the project.
Equity and the exit strategy need to account for the possibility that a project may not perform as forecast. If sales take longer, interest costs continue to accrue. If valuations fall, the amount available through refinancing may also decrease.
A property’s value may support the requested loan, while its income supports a smaller amount. This is why borrowing capacity needs to be tested against both valuation and cash flow.
A useful question is how much room remains after interest is paid. If a vacancy, an incentive package or a higher interest rate absorbs that margin, a facility that initially appears affordable can become difficult to service.
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